Concerns over rising oil and food prices and persistent strength in the loonie are taking away some of the swagger in Canada's business community, the Bank of Canada says.
The central bank said Monday its new spring business outlook survey shows firms remain bullish about the future, but less so than three months ago.
Firms have lowered their sights across a range of indicators including more moderate expectations for the pace of sales growth, hiring and investment over the next 12 months.
"Businesses remain positive about the economic outlook, although some forward-looking indicators have eased from the levels recorded in recent surveys," the bank said.
"Some firms ... cited the negative implications of high prices for energy and food on household spending as a factor dampening sales expectations. A number of firms (also) voiced concerns about
the impact of the high Canadian dollar and strong foreign competition."
Overall, the bank said the survey results show the economic recovery in Canada is advancing and more firms — particularly in the Prairies — are operating near capacity.
The optimism tended to be highest among commodity-related industries.
The Bank of Canada uses the findings in its deliberations over interest rate policy, but nothing in the current report suggests governor Mark Carney is primed to hike rates on April 12, the next opportunity, analysts said.
Most economists continue to believe Carney will leave a hike on the sidelines until July.
Bank of Montreal economist Michael Gregory noted that the survey was conducted between Feb. 14 and March 10, after a strong economic advance in January, but before the earthquake and tsunami hit Japan and before Libya exploded into a full-fledged civil war.
"Expectations might have slipped a bit since then," he said. "However, this does not belie the fact that Canadian firms remain upbeat about their prospects, particularly those in the Prairies or in the commodities sector."
"The survey results are consistent with Bank of Canada policy tightening over time, but not imminently," he added. Half the firms surveyed said they expected to add staff in the next year, as opposed to only 13 per cent that intend to downsize. That's a balance of opinion in favour of additional hiring of 37 percentage points, slightly lower than three months ago.
By a balance of opinion of 13 percentage points, more firms than not said they expected their sales volume to increase at a greater rate in the next year.
As well, more firms than not expect to invest more in machinery and equipment than they did a year ago, by a factor of 24 percentage points.
The firms cited concerns that input costs are rising, although they are less confident they will be able to pass on those higher costs to customers, partly because of strong foreign competition.
Firms said inflation is increasing, driven by higher food and energy prices, but a majority still expect prices to remain within the central bank's control range of between one and three per cent over the next two years.