The Bank of Canada’s first 2011 quarterly survey of expected business condition was published on Monday. Canadian businesses maintain their positive outlook for the next 12 months. There are two main currents:
First, Canadian exporters are seeing modest growth and increased competition, partly due to the higher Canadian dollar (trading above parity) and also moderate demand (Canada’s largest trading partner is the U.S. which accounts for ¾ of all Canadian exports. Second natural resource producers are seeing the strong price increase in most commodity prices as positive aspects, and these remain extremely optimistic (interesting challenge for the Bank of Canada).
The survey shows that most companies feel little additional capacity pressures (unchanged from the past two surveys Q3 & Q4 2010). All firms expect better pricing power for their production – but also higher input prices. However, there is a realization that competition will seriously limit the ability of company to fully pass on to buyers their additional costs – the implication here is for tighter margins. Canadian companies take the view that inflation expectations are well anchored within the Bank’s inflation-control range.