Bank of Canada business survey suggests another tough year

Canadian businesses say they plan on doing less investment in the coming year than at any other time since the recession of 2009, a survey from the Bank of Canada says.

Businesses plan on hiring and investing less in 2016

Grim outlook for oil in 2016

6 years ago
Duration 5:16
RBC Global Asset Management chief economist on tumbling oil prices

Canadian businesses' investment intentions for the coming year are lower than at any other time since the recession of 2009, a survey from the Bank of Canada says.

In its quarterly business outlook survey, the central bank said, "The negative effects of the oil price shock are increasingly spreading beyond the energy-producing regions and sectors."

Low prices for oil and many other commodities "pose significant challenges for many businesses," the bank said.

The survey's interviews were conducted between mid-November and early December. Oil prices have since slid even further, with the benchmark West Texas Intermediate below $32 US a barrel on Monday, and the loonie is flirting with 70 cents.

While the balance of opinion among businesses that the central bank spoke to still think that sales growth may increase in the next 12 months, for the first time since 2009 more companies expect to invest less in the coming year than they did in the last one.

"That's a rarity, outside of recession periods," BMO economist Doug Porter said in a note.

The survey could be a precursor to a new recession if businesses actually end up spending less than they used to.

Plans to cut staff widespread

"Sentiment on the Prairies deteriorated further, but weakening investment intentions are now evident in other regions as well," TD Economics' Leslie Preston noted. "Plans to cut staff are more widespread and not confined to the commodity-producing sectors and regions.

"It does not paint a very positive picture about hiring or investment over the next 12 months," Preston said.

The questionnaire also found that some firms believe the lower dollar will boost foreign sales and tourism-related businesses. But at the same time, the cheaper loonie hikes up the costs of products and services that companies need to import from outside Canada.

"The broad deterioration in the survey points to sluggish growth around the turn of the year (at best), with notable caution in capital spending and private sector hiring — both of which we have already seen in spades recently," Porter said.

Others went even further, suggesting the dreaded R-word is in play.

"The Bank of Canada's fourth-quarter update on business intentions suggests that the economy is slipping back into recession, with shrinking investment soon to be accompanied by a downturn in employment," David Madani at Capital Economics said.

"The further slump in prices of oil and other commodities since that survey was conducted only reinforces our concern. At this stage, we would bet on a rate cut from the Bank later this month."


  • A previous version of this story incorrectly reported that hiring intentions were at their lowest point since the recession. In fact, businesses in the survey reported that their investment intentions are at the lowest point since the recession.
    Jan 12, 2016 1:52 PM ET


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