OTTAWA – A majority of companies polled in the Bank of Canada’s latest business outlook survey have seen increasingly tangible benefits since the oil price shock started to drive down the Canadian dollar.
The central bank’s quarterly survey revealed Friday that a majority of the polled firms, including many in the service and export sectors, reported gains due to the weaker loonie. For example, several manufacturers said their margins received boosts from products sold abroad.
Some respondents also reported less competition from their U.S. counterparts, while others have reaped benefits from increased tourism activity in Canada.
On the other hand, some companies face “significant” pressure when a large portion of their costs for equipment and other inputs are priced in U.S. dollars.
The poll, based on interviews with about 100 Canadian businesses, shines light on some of the currency-related consequences that have started to emerge as the economy continues to adjust to the nosedive in oil prices.
The plunge, which started in mid-2014, delivered a major blow to the country’s energy sector and dragged down the value of the dollar.
From its interviews, the bank said the negative effects of the oil slump seemed to be levelling off, though it noted companies close to the energy sector still faced a difficult environment.
“Firms’ perspectives continue to diverge sharply, depending on whether they are tied to the commodity sector and on their exposure to foreign demand,” the bank said.
“Expectations for future sales growth remain positive, with clear signs of support from U.S. demand. Yet the outlook for domestic sales is guarded in light of sluggish demand and the ongoing adjustment to lower oil prices.”
Many of the surveyed companies viewed stubbornly low oil prices as a big negative for their outlooks, particularly businesses in the energy sector and firms closely connected to it, such as equipment manufacturers.
The poll said investment and employment intentions among businesses have increased since the January survey — but still remain modest. Once again, the bank said, there was a sharp divergence in opinion in these areas depending on how closely connected the company was to the energy industry.
The results also found that planned layoffs and hiring freezes remained “disproportionately high” among respondents in the resource-producing Prairies.
In general, the Bank of Canada described the outlook as “improved” but “subdued overall” since January.
Governor Stephen Poloz has said that falling oil prices have had “unambiguously negative” effects on the crude exporting country. The price of oil is down about 60 per cent since June 2014.
The slump’s fallout knocked Canada into a technical recession last year after the economy contracted over two straight quarters. In response, Poloz lowered the central bank’s benchmark interest rate twice in 2015.
Cheaper crude also pushed once-booming, oil-rich Alberta into recession, leading to large-scale layoffs in the energy sector and industries along the supply chain.
The dollar has largely followed the oil’s downward trajectory.
As a result, the Bank of Canada says the economy has been undergoing a complex adjustment.
The bank’s “best guess” is that it will take more than two years for Canada to fully adjust to the new conditions, deputy governor Lynn Patterson said in a recent speech.
Patterson said sliding oil and other commodity prices have translated into losses of about $1,800 for every Canadian.
BMO senior economist Benjamin Reitzes wrote in a note to clients Friday that the survey results “showed some very cautious optimism among Canadian business.”
Reitzes referred to more-encouraging economic data in recent weeks, but he said “meaningful risks to the outlook” remain.
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