Business outlook tepid as commodities price slide weighs on economy

Business sentiment in Canada remains tepid overall, according to the Bank of Canada, as the adverse effects of weak commodity prices work their way through the economy.

In its Business Outlook Survey released Friday, the central bank found most businesses had a slowdown in sales growth in the economic downturn of the first half of year.

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But there is evidence that manufacturing and service sectors are starting to pick up the slack from the waning resource sector, with about 46 per cent of businesses surveyed anticipating a rise in sales growth in the coming year.

A low dollar and improving U.S. economy are giving them hope, with many of these business relying on export markets to help them grow, the survey showed.

Some have restructured and refocused their efforts, developing more online sales or innovating to develop new markets during the downturn, the bank said.

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"Intentions to increase investment have become more widespread, particularly among firms in some service industries and in the manufacturing sector," the Bank of Canada said in its analysis of the survey.

"Businesses plan to expand their staff, but hiring intentions remain modest overall, partly because of limited plans among domestically oriented firms."

Some firms said the domestic market did not seem set to grow and they were holding off on new investment and hiring.

In election campaigning, the Conservative party has argued Canada was not in recession, but sentiment among business owners surveyed by the Bank of Canada seems to contradict that argument.

Hiring plans also were modest with pullbacks in the resource sector and some companies seeing the impact of companies trying to contain costs in the face of a dragging Canadian economy.

This is particularly true in the resource industry and among businesses that supply it, with low prices leading to a weak outlook and tighter credit conditions.

The lower loonie is a double-edged sword with tourism benefiting, but retailers and wholesalers finding it difficult to manage.

"Many had already passed higher prices for their imported inputs through to their customers, but judge that , in the current competitive environment, raising prices further in response to renewed depreciation would be detrimental to their sales," according to the survey.

TD economist Diana Petramala said she expects trade-based sectors to step out of the resource sector's shadow in the coming months, leading to a pickup in investment spending.

"Indeed, today's report underscores the view that other sectors of the economy would pick-up some of the economic slack caused by the collapse in oil prices," she wrote in a report to investors.

Petramala said the worst of the economic soft patch is likely behind us but highlighted key risks ahead for the Canadian economy, among them high unemployment and the moribund resource sector.