Monday, July 27, 2009

Bank of Canada: Hiring and Sales to Go Up Within a Year

Businesses in Canada say things are looking up after a difficult year, as per a new Bank of Canada survey. One hundred companies were polled in May and June.

Sales are expected to increase in the next year according to 61% of senior managers polled in the quarterly business survey. This is the first positive forecast for sales from a majority of execs surveyed since the 3rd quarter of 2008. In the past year, sales went down according to 69% of respondents, which was a record amount for this poll.

In addition, more companies plan to do more hiring in the next 12 months (39%) than those who plan to lay off employees (17%).

The Bank of Canada comments that in general their results show that businesses expect the economy to improve, but slowly, still conservative about investing.

This is an extremely positive outlook for Canada and as well for the US. But the companies surveyed still don't see US demand increasing in a big way next year. So they estimate that they will spend less on investing in the upcoming year. The results in this area have been negative for the past 2 years as well.

And despite some claiming to have reduced their production capabilities already at this point; the bank says very few businesses report that they would have a hard time meeting unforeseen swells in demand. A greater number of businesses also believe their product prices will be lower next year.

Senior loan officers, polled separately, reported that in the second quarter of 2009 the conditions for lending continued to contract. However, this time the bank explained that the tighter lending was industry-specific than in previous surveys and found more in such areas as the auto sector, forestry products and transportation.

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Economic Growth is on the Horizon

While it is not predicting the end of the economic recession – the worst since the Second World War, the Canadian government is presenting a bright outlook for the immediate future. The government now thinks that the current year's downturn will be less severe than earlier predictions and growth for 2010 will be stronger. As expected, the Bank of Canada is keeping its key policy rate at 0.25-per-cent – an historic low and has pledged to keep that rate until the spring of 2010.

In a move that has surprised some economists, the central bank has reduced the amount of money available to chartered banks in order to support borrowing and lending. Bank Governor Mark Carney has noted that some banks were not drawing down as much money as the Bank of Canada was making available, Mr. Carney cautiously sees this trend as a strong indicator of improving financial markets.

"Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are spurring domestic demand," according to a recent statement released by the central bank.

Mr. Carney has improved his financial forecast for the Canadian economy. An earlier April forecast of three percent annual contraction has been reduced to 2.3 percent. Similarly, he has increased his 2010 growth projection by half-a-point to 3.5 percent.

While agreeing that the future is looking brighter, leading analysts at several of the nation's leading banks view Mr. Carney's outlook as overly optimistic. Most forecasts in the private sector are limiting growth in 2010 to 2.0 percent.

In any event, Mr. Carney has not changed his opinion that complete economic recovery will not be realized before mid-2011.

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