Canadian firms say economy better, but fret over low demand, high loonie: survey

The Canadian Press ~ The News
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Canadian businesses are gaining confidence that the economic recovery is real, but they remain concerned that they're not seeing the results in their individual operations.
A new survey by the Conference Board of Canada shows that business confidence, rather than rising with the country's economic fortunes, has stalled over the past six months.
The latest survey shows the confidence index actually dropping slightly from 96 to 95.6 as businesses fret that they continue operating well below capacity due to weak demand.
Canada's economy grew by a surprisingly strong five per cent in the last three months of 2009, and is believed to have recorded the biggest quarterly gain in a decade during the first three months of this year - in the neighbourhood of six per cent annualized.
But poor capacity utilization continue to dog businesses, the survey, which was conducted between March 8 and April 6, found.
Just 21.5 per cent of respondents said their firm was operating above, at, or close to capacity, while 37.1 per cent said their firm was "substantially below" capacity.
"Respondents are optimistic about general economic conditions and their firms' financial position, but they remain concerned about weak capacity utilization rates," the think-tank says.
"Confidence will not resume its climb until more firms start operating close to capacity."
The Bank of Canada recently estimated that Canada's economic output remained about two per cent below potential.
Firms also said they were concerned about the impact of the high dollar on their operations, and 22 per cent said the low capacity usage was impacting their level of capital spending.
The Canadian dollar was trading down one cent to below 98 cents US on Tuesday but the loonie has been occasionally above parity in recent weeks.
There was some good news in the survey, especially when compared with the dreary results business surveys obtained a year ago when the economy was in free-fall.
Two-thirds of business executives said they expected economic conditions to improve over the next six months, with only four per cent saying they thought they would worsen.
As well, an identical number said they expected their own firms' financial position to improve.
The survey also found that expectations of bigger profits were rising, with almost 62 per cent saying they believed their firm's profitability would improve in the next six months.
In an interview, Export Development Canada chief economist Peter Hall said he has detected a split in the corporate sector in his recent talks with business executives.
In the main, he said those in the natural resources sector were buoyed by the rebound in prices for commodities, but manufacturers were worried about the dollar and low global demand for their products.

Organizations: Conference Board of Canada, Bank of Canada, Export Development Canada

Geographic location: Canada, US

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