Bank of Canada Sees Improving Business Confidence

Derailed Capitalism:

The Bank of Canada released the results of its Autumn 2010 Business Outlook Survey, expecting business investment to increase to help assist with the country's lagging productivity. Despite their bullishness on the Canadian economy and investment, they expect "Global uncertainties [to] remain, although concerns have shifted from Europe back to the U.S. economy. A weaker outlook for U.S. economic growth is dampening sales expectations in a number of cases and reinforcing the general view that growth it likely to be moderate." Summarized from the report:

• Firms reported an increase in sales growth over the past 12 months and continue to expect an improvement over the next 12 months.
• Businesses plan to increase investment expenditures and capital back to more 'normal' levels of spending.
• While the balance of opinion on employment declined, firms still expect to increase employment over the next 12 months.
• Businesses expect input prices to rise by more than they did over the past 12 months.

It will be interesting to see how negative housing data, removal of emergency fiscal and monetary stimulus, and a strong Canadian dollar will impact business investment over the next 12 months. While the bank acknowledges 'uncertainty' in regards to the US economy, they may have underestimated the impact of a weak US currency and economy. Canada's export economy is heavily reliant on the United States (77.7%), United Kingdom (2.7%) and Japan (2.3%). Ironically, all three of these countries have begun the race towards currency destruction in hopes of boosting exports. This will have an impact on the Canadian economy and business confidence within Canada.

Here is the full report from the Bank of Canada:

BoC bos

Comments

[zen0]

Bank of canada also says this:

Household Balance Sheets and the Outlook for Consumption

With Canadians working, but not as much as they would like, they have been borrowing. Real household credit expanded rapidly throughout the recession, in contrast to previous downturns, and has continued to grow through the recovery. Canadian households have now collectively run a net financial deficit for 37 consecutive quarters. That is, their investment in housing has outstripped their total savings for over nine straight years. In effect, households are demanding funds from the rest of the economy, rather than providing them, as had been the case through the 1960s, 1970s, 1980s and 1990s (Chart 10).

This cannot continue. The ratio of Canadian household debt to disposable income reached 146 per cent in the first quarter of this year, an all-time high and very close to the current level in the United States (Chart 11). In a series of analyses over the past year the Bank has found that Canadian households are increasingly vulnerable to an adverse shock and that this vulnerability is rising more quickly than had been previously anticipated. ⁴, ⁵

It is true that the strength of housing and other assets has meant that the net worth of Canadians remains about six times their average disposable income compared with slightly below five times in the United States. However, while asset prices can rise or fall, debt endures. Despite the buoyancy of the housing market, the debt-to-asset ratio has risen to its highest level in more than 20 years.

Just a matter of time.

[hardcleareye]

So what will the Canadians do with the value of their dollar?  Will they follow in the footstep of the US and devalue their currency?

[taraxias]

The great delusional white north.

[hettygreen]

Could not agree more (and I live here) but we have learned at the feet of a true master.

[Harbourcity]

So... what does Canada expect is going to happen if it's majority purchaser of its imports devalues its currency?  Probably will effect export levels and whatever recovery that Canada is relying on will soon disappear.

[masterinchancery]

What, no decoupling? Sacre bleu!

[gerriek]

The same comments apply to Australia where the believe is that the China growth story will bail out Australia where the house - and credit bubbles (gross foreign loans more than $1 trillion now) are still intact.

Listen to Hugh Hendry's views on China:

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/9/28_H...

Read this research on The Great Australian Housing Bubble.

http://seekingalpha.com/article/227083-the-great-australian-housing-bubb... > ource=feed

[RoRoTrader]

Carney spent 8 years at GS.........Bank of Canada of GS