The Bank of Canada says cheaper oil prices are hurting sales forecasts and starting to hit confidence in industries far beyond the energy sector.
In its quarterly Business Outlook Survey, the central bank surveyed 100 representative companies across various Canadian industries and found that broadly speaking, cheaper oil has reduced sales expectations and cut into confidence in doing things like investing in new equipment and machinery, and possibly hiring new staff.
- Cheap oil is dampening Canada's growth outlook, TD Bank says
- Alberta's finances are in trouble even if oil bounces back: TD Bank
"More businesses than in previous surveys anticipate an outright decline in sales volumes," the report said.
The survey interviewed business owners between the middle of February and the middle of March. The ongoing slump in oil prices had been underway for several months at that point, but it's worth noting that Monday's report is the first such survey since the central bank surprised markets with a rate cut at the end of January.
The oil price collapse is taking a toll- TD Bank's Leslie Preston
The survey "showed that firms are quite pessimistic about expanding their capacity over the next year," TD economist Leslie Preston said. "The oil price collapse is taking a toll on Canada's economy."
Although it remains in a range the bank calls "positive," the outlook for hiring has dropped to its lowest level since 2009, when the world economy was in recession just about everywhere following the credit crisis.
Forty of the companies surveyed said they expect to hire more people in the next 12 months than they did in the previous 12. Another 40 said they expect to hire the same amount, with the remaining 20 saying they expect to hire less.
If there's a source of strength, it's that the bank's report suggests companies with strong ties to the U.S. economy are more upbeat. The U.S. is benefiting more from cheap oil than most economies, because it is the most diverse economy on earth and cheaper energy is good news for virtually every other sector.
"Firms' outlook for the U.S. economy is generally strong, with the majority expecting this strength to support their future sales," the report says. Cheaper oil has also hurt the loonie, which exporters to the U.S. cited as another reason for cautious optimism about sales from here on out.
Several firms reported foreign demand had increased thanks to the weakened Canadian dollar, but "while many firms outside the energy sector characterize the effects of lower oil prices and the weaker Canadian dollar as favourable for their business outlook, they expect some of the benefits to unfold only gradually in the future," the report says.