Spillover hits wider area

The fallout from low oil prices is starting to hit a wider section of the Canadian economy, affecting jobs and investment, according to 100 companies surveyed by the Bank of Canada, the equivalent of the U.S. Federal Reserve.

Over the next year, fewer companies expect to invest in machinery and equipment, to expand sales or to hire, the bank said in its quarterly outlook survey.

“Lower oil prices continue to dampen the overall sales outlook of firms, weighing on investment and hiring intentions,” the survey said.

The bank estimated that hiring intentions are at their weakest level since the recession in 2009, with the condition showing up beyond the oil patch and affecting “most sectors and regions,” notably in Canada’s Prairie region and the industrial heartland of Ontario and Quebec.

However, the bank said, some businesses indicate that “lower oil prices and a weaker currency support their business outlook and the majority anticipate a positive impact from strong U.S. economic growth.”

But those businesses outside the oil sector also said they “expect the benefits to unfold only gradually in the future.”

The survey, which reflected the makeup of the Canadian economy, found that labor shortages affecting the ability of companies to meet demand are “less intense than they were a year ago, particularly in the Prairies.”

The conclusions back up the recent warning by Bank of Canada Gov. Stephen Poloz that the negative effects of the oil price shock will be felt hard and early, while the benefits will take longer to materialize.

Poloz said the Canadian economy in the first quarter will be “atrocious” and fall short of the 1.5 percent annual growth rate forecast by the bank.

- Gary Park