Bank of Canada survey shows business optimism as economy expands in April

The Bank of Canada's quarterly business outlook survey signalled widespread business optimism with sales outlooks remaining robust, supported by strong foreign and domestic demand.

The business outlook survey indicator increased to its highest level since the second quarter of 2011 as responses to most survey questions were above their historical averages, the central bank said Friday.

However, the Bank of Canada said almost all of the interviews with firms for the survey were done before the U.S. announcement on tariffs on steel and aluminum imports from Canada.

Escalating trade tensions between Canada and the U.S., including the threats of additional tariffs on the auto sector, have raised concerns for the economy.

The survey of about 100 firms found the balance of opinion on future sales growth was marginally positive as domestically oriented firms, including those tied to housing in some regions, expected a moderation in growth.

It noted that firms that were optimistic about their sales prospects often expected benefit from sustained foreign or domestic demand, improving commodity prices or new products or initiatives to increase market share.

"In particular, firms serving foreign customers reported that orders have improved compared with 12 months ago, and they expect export sales to increase at a greater rate over the next year," the report said.

However, the survey also said the number of firms that would have significant difficulty meeting an unanticipated increase in demand has increased to levels not seen since before the 2008-09 recession.

"Reports of labour shortages are most prevalent in British Columbia but are also common in Central Canada," the report said.

April GDP numbers

The Bank of Canada survey came as Statistics Canada also reported Friday real gross domestic product edged up 0.1 per cent in April over the previous month, topping the expectations of economists for no change for the month.

Gains in the manufacturing and utilities sectors more than offset declines in construction and in mining, quarrying, and oil and gas extraction to help the output of goods-producing industries rise 0.2 per cent.

Activity in the manufacturing sector rose 0.8 per cent in April as the output of both durable and non-durable manufacturing grew.

Services-producing industries were essentially unchanged overall for the month.

Both the business outlook survey and the latest reading on GDP will be scrutinized by the central bank ahead of its interest rate decision next month.

The Bank of Canada kept its key interest rate target on hold at its last rate announcement, but the central bank's accompanying statement was interpreted by many economists as suggesting that rates could head higher later this year.

However, the Trump administration announced tariffs on steel and aluminum imports a day after the last rate announcement and has since made threats of additional tariffs on other goods including automobiles. Canada has responded with its own plans for tariffs on U.S. steel and aluminum imports as well as duties on a wide range of other goods.

Bank of Canada governor Stephen Poloz said earlier this week the escalating cross-border trade fight and new mortgage rules will "figure prominently" in the central bank's upcoming interest-rate decision.

The governor added the central bank will continue to focus on economic data it can model rather than trying to follow political rhetoric.

The Bank of Canada has raised its key interest rate target three times since last summer, moves that have prompted Canada's big banks to raise their prime lending rates. The central bank's target for the overnight rate sits at 1.25 per cent.

The business outlook survey was conducted from May 3 to June 5.