The Bank of Canada released two quarterly surveys this week: the Business Outlook Survey and the Senior Loan Officer Survey. Together, the two surveys relay information on trends in firm sales, investment, employment, and bank lending standards.
The reports suggest that economic uncertainty remains high and current conditions are weak and expected to weaken further. However, there is a silver lining: a growing share of survey respondents expect sales, investment, labor, and banking conditions to improve over the next year.
The Canadian economy, like the rest of the world, is contracting quickly.
The chart illustrates quarterly real economic growth and the unemployment rate in Canada since 1976. Economic conditions have decreased substantially: GDP fell 0.8% in Q4 2008 and the unemployment rate rose to 7.6% in Q1 2009, and both are expect to fall further.
Consistent with the drop in Q4 2008 GDP and Q1 2009 employment, the Bank of Canada's Business Outlook Survey indicates that past and/or prospective sales growth, investment, and employment continue to deteriorate into Q1 2009.
Expected sales growth is still negative in net, but a growing share of firms report an increase in past sales and an rising expected sales.
The chart illustrates the net share of firms that reported an increase in sales over past 12 months (Q1 2008 to Q1 2009), and those that reported an expected increase in sales over the next 12 months (Q1 2009 to Q1 2010). Overall, sales prospects continue to deteriorate. However, a larger share of firms reported increasing sales volumes over the last year in Q1 2009 compared to the previous quarter; and furthermore, a growing share of firms expect sales to improve over the next year.
Investment and employment prospects are still negative; however, a growing share of firms report improved conditions going forward.
This chart illustrates a similar story as does the sales chart: investment and employment prospects continue to decline in net; however, a growing number of firms are more optimistic about future conditions. Furthermore, there share of survey respondents that expect labor conditions to improve is almost equal to that of respondents that expect labor conditions to weaken.
Finally, according to the Bank of Canada's Senior Loan Officer survey, Q1 2009 bank lending remains tight, having tightened further since Q4 2008. However, the net new tightening was less widespread, meaning that more banks reported either not tightening or actually easing (the survey does not tell).
Together, the reports suggest further economic decline and tightening of lending standards is in the pipeline for Canada. The Bank of Montreal forecasts that the economy will contract another annualized 6.5% in Q1 2009 (roughly 1.6% on a quarterly basis), exceeding the 3.4% annualized (0.8% on a quarterly basis) contraction in Q4 2008.
The economic uncertainty is still strong, but the survey results suggest that a sliver of the anxiety is wearing off. Firms and banks may turn a corner if the uncertainty ebbs.