Canadian businesses face tight capacity: survey

OTTAWA, Jan. 8 (Xinhua) -- The last quarterly survey of Canadian business sentiment in 2017 shows that the country's businesses are under the tightest capacity pressures, according to the Bank of Canada Monday.

Under the Canadian central bank's fourth-quarter Business Outlook Survey issued Monday, 56 percent of participants said they would have "some" or "significant" difficulty meeting an unanticipated increase in demand, up from 47 percent in the third-quarter survey in 2017, and the highest reading since the 2007 fourth quarter.

The survey, involving senior managers of about 100 firms, was conducted from Nov. 14 to Dec. 8 last year.

The surveyed businesses reported increasingly intense labour shortages that are restricting their ability to meet demand.

They said they are increasing hiring and capital investment to address these tight capacity conditions, in the face of what they say is still-growing demand, although they did say that they expect the pace of sales growth to moderate in the next year.

The survey solidifies the case that has been building for the central bank to raise interest rates by another one-quarter of a percentage point to 1.25 percent from the current 1 percent, when it issues its first rate decision of the new year on Jan. 17, after taking a pause on rate hikes following two increases last summer.

It confirms recent indications from economic data that the economy is running full-out, with little or no spare capacity left to meet strong demand.

Last month, the central bank said it would be "cautious" in raising rates, and that its decision on further hikes would be "guided by incoming data."

Those data have recently been flashing the green light for the central bank to go ahead with further rate hikes as they point to fast-tightening capacity and growing inflationary pressures.

Expectations for a rate hike surged last week after Statistics Canada reported that the economy turned in another gangbuster month for employment in December, adding 79,000 net new jobs and lowering the unemployment rate to 5.7 percent, the lowest since the statistical agency began collecting comparable data in 1976.

The Business Outlook Survey confirms that view that any remaining slack in the economy is disappearing, both in terms of labour and capital.

The bank said. "Survey results suggest that economic slack is now largely limited to the energy-producing regions."

And notably, businesses don't seem to be letting concerns over the NAFTA trade negotiations darken their optimism - something the central bank has been watching for as it gauges how this key uncertainty might discourage investment and business expansion.

"While respondents are increasingly concerned about the renegotiation of the North American Free Trade Agreement and rising protectionism more generally, most see healthy U.S. growth and the low Canadian dollar benefiting their sales over the next 12 months," the bank said. "Views on the U.S. economy have strengthened due to expectations of upcoming tax reforms and strong US consumer demand."

"On balance, firms expect an acceleration in export growth," the central bank added. Enditem