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Canadian firms still positive about future

OTTAWA - The Bank of Canada says Canadian firms are confident about future prospects and the economy — although they are still not totally sold on a strong recovery and remain cautious about investment and hiring.

The central bank's latest business outlook survey shows executives giving positive responses across a number of expectations, from sales activity, hiring intentions and investment plans.

But in most cases, confidence levels dropped from the spring survey.

The loonie, which had been up prior to the 10:30 a.m. EST release of the outlook, dropped slightly afterwards and was trading slightly below Friday's close of 93.84 cents US at noon on Monday.

"The summer business outlook survey continues to offer some encouraging signs for the economic outlook, although lingering uncertainty and intense competition still hinders the pace of growth," the bank said in an analysis of the results, which are based on a survey of 100 representative firms conducted between May 20 and June 12.

Still, analysts noted the "softer" tone in the results compared to the spring and said it was one more reason bank governor Stephen Poloz would likely sound a dovish tone at next week's interest rate announcement and publication of the latest monetary policy report.

"Governor Poloz puts a heavy weight on surveys and (this) will provide the bank with all the reason it needs to do absolutely nothing," said economist Benjamin Reitzes of BMO Capital Markets. "There is nothing here to push the Bank of Canada away from its neutral stance."

Overall, the bank found some encouragement that expectations for future sales growth remain positive and that business sentiment regarding exports were firming.

Poloz has said the economy will need a recovery in exports to convince firms to spend on productivity-enhancing machinery and equipment and start Canada on a cycle of self-generating, sustained growth.

But until recently, exports have lagged behind other sectors in the economy, although May's numbers showed shipments jumping by a higher-than-expected 4.2 per cent in volume terms.

Part of the confidence stems from improving activity in the United States after that country suffered through a harsh winter that temporarily side-tracked growth.

"Expectations for U.S. economic growth continue to strengthen," the bank said Monday of business sentiment, "and orders from domestic and international customers show improvement from a year ago."

About 70 per cent of Canadian exports head south of the border.

In the survey, 36 per cent of firms said sales volumes rose by a faster pace in the past 12 months than the year before, while 31 per cent said they had grown at a slower pace. While still positive by a balance of five points, that is below the plus-14 percentage point finding in the spring survey.

As well, expectations on future sales were slightly less positive than in the spring, although with a plus-24 balance of opinion, the result is considered strong.

On the critical hiring intentions question, 43 per cent of firms expected to add employees in the next 12 months, compared to only 15 per cent that planned to reduce workers. Again, the 28 per cent positive balance of opinion was more modest than the plus-45 percentage point result obtained three months earlier.

The most noticeable improvement from the spring survey was in investment intentions, although the bank said that plans were mainly tied to upgrading or replacing existing equipment.

Business leaders also said they had little fear of inflation, saying tepid domestic demand and intense competition should keep increases in consumer prices modest.

In a separate survey of senior loan officers, the bank said the results pointed to a further easing in overall business-lending conditions during the second quarter, continuing a long-standing trend.

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