–Firms Plan More Investment, More Hiring
–Firms See Inflation Firmly Anchored
–Credit Remains Tight for Small and Medium Business

By Courtney Tower

(MNI) – Businesses are pointing to gradual economic recovery in
Canada, citing positive plans for investment spending and employment but
still finding access to credit difficult for small- and medium- sized
companies.

Credit conditions remain tight for all but the large firms which
are receiving better terms and conditions from domestic banks, the Bank
of Canada reported Monday.

For the others, the majority, there has been little change reported
in this spring survey of 100 firms by the Bank of Canada from the winter
survey reported Jan. 11 and from the fall survey before that.

For the so-called SME (small- and medium-sized enterprises) credit
has been tight and remains tight since the onset of the global financial
crisis in September 2008.

A companion survey of senior loan officers at major lending
institutions in Canada, reported by the BOC, said that for “corporate
borrowers,” credit conditions had eased for the third consecutive
quarter.

For small businesses and commercial borrowers, they said, credit
access had entered a period of “stabilization” following “several
consecutive quarters of tightening.”

“Stabilization” was not further defined.

Overall the BoC reported that the Business Outlook Survey for the
first quarter provided “further evidence that the recovery is taking
hold” and that inflation will remain in check.

The recovery will not be headlong, but gradual, according to
expectations in the survey.

Firms are expecting sales increases in the next 12 months. Plans
for increased investment spending are “increasingly targeted at
expansion and improving efficiency to promote future growth.”

They expect to move forward within an economy for which inflation
remains anchored within the Bank of Canada’s control range of 1% to 3%
— 54% expect annual total CPI inflation to range between 1% and 2% .
It is as 1.6% now while core inflation is at 2.1%, a fraction over the
2.0% target.

Canadian business productivity has recently been described as
“abysmal” by BoC Gov. Mark Carney, and he particularly cited business
spending on machinery and equipment and on innovation and research.
Monday’s survey, however, shows only 43% of firms expect to invest more
and 57% expect to spend less [21%] or the same [36%] as in the past 12
months. This comes after a period in which investment spending was low.

A more positive cast is put on investment intentions by saying
there is an increasing focus on new markets and product lines,
“particularly among manufacturers.”

A bright outlook for the next 12 months overall is seen in the 64%
who expect a faster rate of sales growth than in the past 12 months, due
to general economic recovery and a more positive outlook for the U.S.
economy. Another factor is Canadian firms increasingly taking “there own
initiatives to reposition themselves for growth.”

Employment in Canada, now at an annual rate of 8.1% unemployment,
can be expected to improve somewhat with 50% of firms expecting to hire
in the next 12 months. Only 12% expected lower employment levels in
their firms and 38% expected them to stay the same.

Capacity pressures on firms remain low, essentially unchanged from
the winter survey. Most firms are operating below capacity and expect to
remain so for at least the next six months. The Bank of Canada terms
this outlook “consistent with the view that demand will recover at a
gradual pace.”

Relative price stability is indicated by expectations of firms for
the prices they will pay for commodities and other inputs and the prices
they will charge for outputs. The basic intention reported by the BoC is
to “keep prices stable or raise them slightly” from the recessionary
period of price discounting.

** Market News International **

[TOPICS: M$C$$$,MAUDS$]