BoC: Policy bias intact in its latest survey – Scotiabank

According to Derek Holt, VP & Head of Capital Markets Economics  at Scotiabank, there is very little new information contained in the latest quarterly Business Outlook Survey and a broad theme is that investment intentions continue to improve while inflation signals and capacity concerns remain subdued.

Key Quotes

“On balance I see little here to change the BoC’s policy bias. The risk remains that it is stale with respect to evaluating US policy risks including the prospects for more expansion US fiscal policy relative to trade risks given that the survey was conducted over February 13th to March 9th and hence before the failure to pass US healthcare legislation may have dented expectations for the Trump administration to deliver other policy aims.”

“The BOS survey also confirms the BoC’s argument that broad spare capacity persists, and does so on three counts:

• Inflation expectations remain firmly anchored in the 1-2% range over the next year (64% of respondents, 66% previously). Companies signalled margin pressures with a more firms signalling higher expected input price pressures while expectations for output price pressures were balanced.
• 61% of firms are signalling they would have no difficulty meeting additional demand. 29% of firms say they would face some difficulty, which is down from a recent peak of 35% in Q3. 10% say they would face significant difficulty in meeting additional demand which is a recent high. Therefore the survey indicates that activity readings can be solid as indicated in future sales growth but that there would be little difficulty meeting this demand which is neutral/dovish to inflation risk.
• Businesses say that labour shortages were somewhat less acute in Q1 than the prior two quarters.”

“Expectations for future sales growth ebbed a touch after rising to the highest level in about a couple of years.”

“Investment intentions continue to soar and hit the most optimistic reading since 2010Q3.”

“The implications of a potential recovery in the investment cycle contain built-in offsets from a BoC standpoint.”

“The employment subcomponent improved a little further to the highest reading since 2014Q3. How the investment-jobs cycle plays out may be among the key risks to the outlook.”