Bank of Canada’s business outlook survey finds optimism

The autumn Business Outlook Survey from Bank of Canada has found some signs of improving business prospects, as resource-related activity appears to be gradually bottoming out and foreign demand is supporting firms’ sales expectations.

Bank Canada business outlook survey optimism

Bank of Canada’s business outlook survey finds optimism

Given the relatively stable commodity prices in recent months, resource-related firms now cautiously believe that sales will no longer fall or will increase modestly.

In the wider economy the outlook for exports remains supportive, said the central bank, as foreign sales are expected to gain momentum over the coming 12 months.

The United States is Canada’s biggest trading partner and remains the main driver of positive prospects for exports, although businesses generally expect U.S. growth to be slow overall. This view is often linked to the climate of uncertainty around the outcome of the presidential elections in November.

“In this context, some firms noticed a recent soft patch in demand for their products and services from clients south of the border,” the bank’s report said.

Meanwhile, both investment and employment intentions have improved, with cuts in the resource sectors coming to an end.

Pressures on production capacity are largely unchanged. Bank of Canada found that firms in the Prairies continued to report abundant spare capacity as sales volumes remain depressed by the downturn in the energy sector. Capacity pressures have become more widespread among firms benefiting from weaker commodity prices and the lower dollar, including many exporters.

“Although more businesses reported that they are approaching capacity limits due to strengthening demand, many would have no difficulty increasing output, mostly because weak past demand has left them operating below normal levels,” the bank explained.

The survey also found indicators of both input and output prices pointing to limited pressures due to diminishing exchange rate pass-through and intense competition.

Inflation expectations edged down, and credit conditions point to a marginal easing.

The Bank of Canada, BoC (French: Banque du Canada) is Canada’s central bank. The bank was chartered by and under the Bank of Canada Act on July 3, 1934, as a privately owned corporation. In 1938, the bank was legally designated a federal Crown corporation. The Minister of Finance holds the entire share capital issued by the bank. “The capital shall be divided into one hundred thousand shares of the par value of fifty dollars each, which shall be issued to the Minister to be held by the Minister on behalf of Her Majesty in right of Canada.”

The essential role of the bank, as Canada’s central bank, is to “promote the economic and financial well-being of Canada.” More specifically, the responsibilities of the bank are:

  • the formulation of monetary policy;
  • as the sole issuing authority of Canadian banknotes;
  • the promotion of a safe, sound financial system within Canada; and
    funds management and central banking services “for the federal government, the Bank and other clients.”

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Bank of Canada – Canada’s Inflation Edges Up, but Still Below Target

Bank of Canada – Canada’s Inflation Edges Up, but Still Below Target

Canada’s consumer price index (CPI) edged up to 0.9% in November from 0.7% during the previous month, the latest inflation report from Statistics Canada shows. Despite the increase, the inflation gain was still below market projections for a 1.0% rise and below the central bank’s target band for a second consecutive month, suggesting that weak consumer demand will remain one of policy makers’ top concerns in the months to come.

November was the seventh month in the past 13 where the headline inflation witnessed growth of less than 1% in annual terms. It was also the 19th month to see inflation below the central bank’s 2% target. The rise was mainly driven by an increase in shelter and food costs, but this was offset by lower prices for health and personal care, as well as for clothing and footwear.

Headline inflation recorded no change month-on-month, while the core rate, which excludes volatile items such as gasoline and food, declined to 1.1% from 1.2% in October, thus failing to meet market expectations for a 1.3% gain.

Bank of Canada

Bank of Canada published quarterly guidance in October. The bank is due to revise its forecast on 22 January.

The Bank of Canada published its quarterly guidance in October, predicting that inflation in the fourth quarter would be 1.3%, but now this scenario seems rather unlikely. The bank is due to revise its forecast on 22 January.

Statistics Canada’s inflation report, which was released on Friday, prompted a decline in the Canadian dollar to a low of C$1.0713 to the US dollar, or 93.34 US cents, against C$1.0666, or 93.76 US cents, the previous day. The weakening justified analysts’ fears that the heavy discounting around Black Friday would prevent inflation from picking up steam in the short term.

Bank of Canada Keeps Key Interest Rate On Hold

Bank of Canada said that the economy is growing in line with its Monetary Policy reports.

In a statement announcing its decision last week, the Bank of Canada said it was seeing reassuring signs in the local economy and globally. It also noted, however, that inflation was still too low to change its stance that the pace of recovery remains fragile and that the economy needs the monetary policy stimulus currently in place.

Bank of Canada

Bank of Canada said that the economy is growing in line with its Monetary Policy reports.

The central bank considers that Canada’s economic growth is moving in line with the guidance reflected in its Monetary Policy reports issued in October and July this year. However, it pointed out that while the third-quarter improvement of 2.7% in the country’s gross domestic product (GDP) was higher than forecast, its composition did not show signs of rebalancing towards exports and investment.

Growth in the housing sector was also more substantial than predicted earlier, but the rate reflected revised demographic data and more people buying homes as a result of improved financing conditions. This prompted the bank to reiterate its projection for a “soft landing” in the market.

At the same time, the inflation rate has dipped further below the Bank of Canada’s 2% target, driven by excess supply and by fierce competition in the retail sector, coupled with the drop in gasoline costs.

The Bank of Canada is due to release its next rate announcement on 22 January 2014.

Despite the Bank of Canada continuing to holding rates steady, the DEX Universal Bond Index is down by a full percentage point, year-to-date. This suggests that the market is expecting higher rates sooner rather than later. Fixed-income investors should avoid long-term bonds and focus on defensive high quality short-term issues.

The Canadian Govt Bonds 10 Year Note is 2.67%, up from 1.79% at the beginning of 2013–an increase for 49%.

GDP in August Exceeds Forecast on Record Oil and Gas Extraction

GDP Rose 0.3 Percent to an annualized $1.59 trillion

August gross domestic product grew faster than economists forecast as a result of record extraction of oil and natural gas. This puts the Canadian economy on track for its fastest quarterly expansion in two years.

Output rose 0.3 percent to an annualized $1.59 trillion Statistics Canada said today in Ottawa, beating the 0.1 median forecast in a Bloomberg economist survey.

Growth will likely quicken to about a 2.5 percent annualized pace in the fourth quarter according to economists at CIBC World Markets and TD Securities, the fastest since a 6.2 percent gain two years ago. Stronger growth would reduce what the Bank of Canada last week called “significant” slack in the economy, which led policy makers to drop language about raising interest rates.

Statistics Canada reported that oil and gas extraction rose 2.8 percent in August to a record C$97.6 billion. Other industries made a more modest contribution to growth during the month, with wholesaling rising 0.4 percent and manufacturing falling 0.3 percent.

GDP Bank of Canada

GDP Rose 0.3 Percent to an annualized $1.59 trillion

Last week, the Bank of Canada predicted third-quarter growth of 1.8 percent, after it slowed to 1.7 percent in the second quarter as a result of soft energy exports and business investment. The Bank of Canada kept its key overnight interest rate at 1 percent. Governor Stephen Poloz said slack in the economy would persist until around the end of 2015.

In 2012, GDP grew by 2.0 percent in August, Statistics Canada said, accelerating from July’s revised 1.5 percent.

Other economic indicators suggest a slow expansion, including inflation that’s close to the bottom of the central bank’s 1 percent to 3 percent target range and a reduced pace of job growth this year.

Statistics Canada also reported that average weekly earnings of non-farm payroll employees rose 1.3 percent in August from a year earlier while the average number of hours worked fell to 32.9 from 33.1 over that period. The number of workers on payrolls rose 0.3 percent in August from July, or by 51,300.

The markets have advanced to the point where positive developments appear to be priced in while the longer-term headwinds have been ignored.  This could set the stage for some pullbacks in the market as these underlying issues surface.