By Kim Mackrael
OTTAWA -- Firms in Canada said their hiring and investment prospects have improved, two years after a sharp decline in global energy prices weakened the country's economy and contributed to significant cutbacks in some sectors.
The Bank of Canada's quarterly business-outlook survey showed that companies were more optimistic about the future thanks to the strengthening of domestic demand and an improved outlook for exports.
Businesses also said they anticipate a recovery in energy-related activity, as the drag from the 2014 oil-price shock continues to dissipate.
"The outlook for exports is providing steady support for firms' sales expectations, with businesses again citing the favorable exchange rateand U.S. demand as the most important supporting factors," said the survey, which was released Monday.
"Expectations for U.S. economic growth over the next year are generally positive, although considerable uncertainty surrounds the implications of the U.S. election outcome for firms' outlook."
Economists in Canada have expressed concern over a possible increase in protectionism under president-elect Donald Trump, which could affect Canadian exports. Canada currently sends about three-quarters of its exports to the U.S.
Brittany Baumann, an economist at TD Securities, said the survey should reinforce expectations that the Bank of Canada will remain on hold but maintain a cautious tone during its next interest-rate decision, which is due Jan. 18.
"The release offers enough optimism over future activity to add comfort to the Bank of Canada's growth outlook," Ms. Baumann said in a note to clients. At the same time, she said, caution is warranted "in light of substantial economic slack that lingers and the uncertainty over U.S. policy."
The Bank of Canada kept its key interest rate at 0.5% throughout last year, after cutting it twice in 2015 in response to the global slide in energy prices. The central bank's most recent economic forecast called for growth of 1.1% in 2016, followed by an improvement to 2.0% in both 2017 and 2018.
The Bank of Canada survey said firms' sales expectations for the next year continued to improve, with businesses that were most affected by the oil-price decline now anticipating at least some growth in sales.
Investment intentions also recovered further, particularly among exporters, reaching their highest level in at least two years. In another positive sign, more firms reported plans to hire additional staff over the coming year.
While expectations for inflation edged up, the survey said, businesses continued toanticipate that inflation will remain in the lower half of the Bank of Canada's target range of 1% to 3% over the next two years. Many said weak commodity prices and continuing slack in the economy are likely to contribute to inflation remaining relatively low.
The business-outlook survey is based on interviews with senior managers from about 100 firms and was conducted between Nov. 14 and Dec. 5, 2016.
Write to Kim Mackrael at email@example.com
(END) Dow Jones Newswires
January 09, 2017 13:16 ET (18:16 GMT)
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