Canadian companies are more optimistic about future sales and exports, and plan to boost hiring and investment to meet demand despite lingering uncertainty about U.S. protectionism, the Bank of Canada said on Monday.
Firms expect some increase in sales growth over the next 12 months amid rising domestic and foreign demand, with a growing number of companies expecting strong growth in the United States, Canada's largest trading partner.
"Nevertheless, firms remain wary in an environment of elevated uncertainty about potential U.S. policy changes," the central bank said in its quarterly business outlook survey.
Negative risks include increased U.S. protectionism, reduced competitiveness of Canadian firms if U.S. corporate taxes are cut, and possible delays in pro-growth U.S. policies, firms said in the survey.
Overall, the survey suggests a modest recovery in business sentiment after two years of weakness. Canada's economy had been sideswiped by an oil price shock, and the Bank of Canada has kept official interest rates near historic lows to stimulate growth even as the U.S. Federal Reserve has begun raising rates.
Businesses across the country said they saw better indicators of future sales than 12 months ago "by a solid margin," the survey showed.
Intentions to increase investment have become more widespread since a survey three months ago, and hiring intentions remain positive, with labor market slack no longer widening, the report showed.
Firms in all sectors and regions plan to add jobs over the next 12 months, and businesses in some regions, particularly in British Columbia, report increased difficulties in finding labor, the bank said.
The survey showed excess capacity persists, but firms expect a gradual tightening as demand strengthens. Prices also remain subdued, with firms anticipating little momentum in either input or output prices.
An expected rebound in energy-related activities after a two-year oil price slump should support sales, while the weaker Canadian dollar boosts exports and the tourism sector, the survey showed.
"Meanwhile, some firms believe that activity in sectors experiencing robust growth (such as housing and automobiles) could soon level off," the report said.