Business outlook getting worse amid oil shock, Bank of Canada survey suggests

Canadian businesses say they plan on doing less hiring and investment in the coming year than at any other time since the recession of 2009, a survey from the Bank of Canada says.

In its quarterly Business Outlook Survey, the central bank said "the negative effects of the oil price shock are increasingly spreading beyond the energy-producing regions and sectors."

Low prices for oil and many other commodities "pose significant challenges for many businesses," the bank said.

The survey's interviews were conducted between mid-November and early December. Oil prices have since slid even further, with the benchmark West Texas Intermediate below $32 a barrel on Monday, and the loonie threatening to dip to 70 cents.

While the balance of opinion among businesses that the central bank spoke to still think that sales may increase in the next twelve months, for the first time since 2009 more companies expect to hire and spend less in the coming year than they did in the last one.

That could be a precursor to a new recession if businesses spend less than they used to, and if they hire fewer people too.

Plans to cut staff widespread

"Sentiment on the Prairies deteriorated further, but weakening investment intentions are now evident in other regions as well," TD Economics' Leslie Preston noted. "Plans to cut staff are more widespread and not confined to the commodity-producing sectors and regions."

"It does not paint a very positive picture about hiring or investment over the next 12 months," Preston said.

The questionnaire also found that some firms believe the lower dollar will boost foreign sales and tourism-related business. But at the same time, the cheaper loonie hikes up the costs of products and services that companies need to import from outside Canada.

"The broad deterioration in the survey points to sluggish growth around the turn of the year (at best), with notable caution in capital spending and private sector hiring — both of which we have already seen in spades recently," BMO economist Doug Porter said.

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