Canadian business sentiment has deteriorated significantly in the past quarter, and has hit its lowest level since the Bank of Canada began conducting its Business Outlook Survey.

The central bank’s latest survey, released on Monday, shows that the global financial crisis and weakening economy has begun to impact domestic demand, hampering the confidence of businesses in Canada.

For the first time in the history of the survey, the balance of opinion on employment has turned negative, indicating that firms expect the level of employment to contract over the next 12 months.

Only 20% of executives at the 100 companies surveyed indicated that they expect their firm’s level of employment to increase in the year ahead, while nearly 30% of the executives expect positions to be eliminated.

Hiring intentions are lower among companies in the goods sector than for those in the services sector, according to the survey, which was conducted in late November and early December.

The percentage of firms reporting that labour shortages are constraining their ability to meet demand fell to a record-low level at 20%. This is down sharply from 36% in the autumn survey.

Credit conditions have tightened significantly in the three months since the last survey, according to the executives. Of the firms surveyed, 63% reported that the terms and conditions for obtaining financing had tightened, up from 44% in the autumn survey.

The tighter credit market was felt across all sectors, and most firms indicated that it occurred in the form of higher borrowing costs.

“The majority of these firms characterized the change as being significant and felt that it was driven mainly by a market-wide adjustment in risk premiums,” the report says.

The survey also finds that the balance of opinion on sales has dropped sharply, with more than half of businesses reporting slower growth in sales in the past 12 months. Furthermore, 57% of firms expect sales growth to slow even further in the year ahead, and many expect an outright decline in sales.

The number of businesses planning to increase investment in machinery and equipment in the next year plunged to 17% from 38% just three months ago. Nearly half of firms expect their level of investment to fall in the next year, down from 18% in the autumn.

“Many firms have curtailed planned investment in response to the weaker economy, tighter credit conditions, and falling commodity prices,” says the Bank of Canada report on the survey findings.

On the topic of prices, 65% of firms said they expect input prices to grow at a slower rate in the next 12 months, up from 38% of firms surveyed in August and September.

“This view mainly reflects the recent drop in commodity prices and the expected impact that this will have on the prices of key inputs,” the report says.

Another 53% of firms expect that output prices will also grow more slowly in the year ahead.

In considering overall inflation, nearly three-quarters of firms said they expect inflation to be lower than the 2% target midpoint of the Bank’s inflation-control range over the next two years.

IE