Mark Carney, the Governor of The Bank of Canada.Deborah Baic/The Globe and Mail
Canada's economy is starting to spark, with businesses setting plans to ramp up hiring and investment as they shake off their recession-era angst.
Just days after an unexpectedly strong reading on jobs created in March, Canadian companies issued an upbeat view of future sales trends and hiring intentions, displaying a confidence not seen during the sputtering rebound from the deep recession and financial crisis.
Canada is at a crucial point in the recovery, as governments cut back spending and consumers turn their attention to their sizable debts. That has put the heavy lifting in the hands of corporations that are flush with cash but have so far remained cautious, having been burned before by disasters both human-made and natural. Now, as signs point to a modestly improving U.S. economy and stability in Europe, Canadian companies appear committed to ramping up efforts to expand not just inside the country but abroad, according to a Bank of Canada survey released Monday.
"I think people generally believe that the worst is over," said Bill Hammond, chief executive officer of Hammond Power Solutions Inc., a Guelph, Ont.-based manufacturer of electrical transformers that has seen a rebound in sales over the past few months. If that continues, it expects to add as many as 400 workers in North America in the coming years.
"We believe we are going to have to not only increase our employment over the next three to five years, but also probably increase the pace of investment," Mr. Hammond said.
The central bank's quarterly Business Outlook Survey shows the bulk of firms polled plan to increase hiring and investment in the next year. The outlook for sales growth underpins the optimism.
Fifty-eight per cent of the respondents said they expect sales to increase in the next year, compared with 23 per cent who believe they will fall. The "balance of opinion" of 35 percentage points was the best reading on that question since early 2010, contrasting sharply with a minus-4 reading in January, which was the worst in almost three years.
Among the companies predicting better sales were those that have taken steps to "reposition" themselves to grab their share of "highly competitive markets," the survey found. The central bank did not name those markets, but has urged Canadian companies to look beyond the United States and Europe.
"We think 2012 could get us back to where we were before the recession," said Don Lang, executive chairman of CCL Industries Inc., a Toronto-based specialty packaging company that operates in 23 countries and plans to open new plants in Thailand, Brazil and India. "We're following our customers, which tend to be Western companies that are operating in developing-world countries. We're basically following them because that's where the growth is."
The poll of about 100 companies is the last major piece of economic data that the central bank will see as it prepares for an interest-rate decision on April 17, and a quarterly forecast that it will release the following day. Bank of Canada Governor Mark Carney is likely still many months away from raising his benchmark rate from the current 1 per cent for the first time since September, 2010, economists said, especially since other parts of the business survey suggest inflation is well contained.
Still, taken together with last Friday's rosy employment report from Statistics Canada – which said a net 82,000 new jobs were created in March – and comments last week from Mr. Carney indicating the economy is doing better than expected, the survey results set the stage for a possible shift in tone next week.
"The risks of the bank moving on rates this year are rising," Doug Porter, deputy chief economist at BMO Nesbitt Burns, said in a research note, adding that lingering concerns about the U.S. and Europe "argue for no urgency."
Indeed, even though Mr. Hammond and Mr. Lang are increasingly optimistic, both remain "cautiously" so.
Mr. Hammond, for instance, recalls that things looked good in the first quarter of 2011, before Japan's tsunami and other natural disasters in Asia, escalating debt dramas on both sides of the Atlantic Ocean, and wild gyrations in financial markets almost snuffed out the rebound.
"We didn't see any of those things hitting us last year," he said, "so it just proves that this is still a pretty volatile and uncertain world."
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COMPANIES SURVEYED BY THE BANK OF CANADA THIS SPRING:
58%
Expect increased sales over the next year
Orders and contracts for future sales have improved compared with a year ago as expectations for U.S. economic growth improve and fears about the global economy start to subside. The spillover effect from stronger commodity prices and market share battles have also contributed.
46%
Intend to buy more machinery and equipment over the next year
Investment in machinery and equipment remains solidly positive, although many companies reported that their investment spending is still focused on ways to reduce costs and increase productivity.
55%
Plan to add staff over the next year
This level is essentially unchanged. Most firms that expect to expand their work forces are doing so to support current or expected sales growth and expand market share.
63%
Expect inflation of 2 to 3 per cent over the next two years
The vast majority expect CPI inflation to be within the central bank's inflation-control range of 1 to 3 per cent. Most, however, expect it to be in the upper half of this range given the recent strength in oil prices.
Source: Bank of Canada, Business Outlook Survey Spring 2012