Outlook surveys present opposing views on prospects for growth, but not inflation
John Clinkard
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Seed Newsvine |
Two recent business outlook surveys, one of large firms and the other of smaller ones, present opposing views of Canada’s near-term economic growth prospects.
However, their take on the inflation outlook was nearly identical.
According to the results of the Bank of Canada’s (BOC) quarterly Business Outlook Survey, conducted between May 20 and June 13, large Canadian firms do not appear to be experiencing widespread weakness.
This view is supported by the fact that, on balance, the net proportion of firms expecting future sales growth to increase at a greater rate than it did during the past 12 months was slightly higher than it has been since second-quarter 2007.
One particularly noteworthy result of the BOC survey was the very sharp increase in the net percentage of firms indicating they were planning to invest in machinery and equipment in the next 12 months. Indeed, investment plans jumped more in the second quarter than they have since 1999.
The relatively positive view reported by the BOC Outlook Survey contrasts sharply with the results of the the latest Business Barometer Index from the Canadian Federation of Independent Business.
In June, the CFIB index tumbled from 104.1 to 100.7, its lowest level since third-quarter 2001. According to the CFIB, while 37 percent of business owners report stronger performance, 31 per cent say their performance is worse.
While the two surveys disagree on the outlook for growth, they both reported significantly higher inflationary expectations. In the case of the CFIB, 44% (a record high) are expecting to increase their prices in excess of 2% over the next 12 months, while the BOC reported that the net number of firms expecting higher input and higher output prices reached record high levels in the second quarter of this year.
This consistency regarding inflationary expectations certainly increases the risk that the Bank of Canada will be forced to raise interest rates before the end of the year, in order to cool inflationary expectations before they escalate.
