MNI DATA IMPACT: BOC: Firms Near Capacity, Investment Slows>

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - Canadian businesses have little room to handle fresh 

demand as trade tensions ease, while also reporting the lowest 

investment plans in more than three years amid slower sales forecasts, a 

Bank of Canada survey showed. 

     The Business Outlook Survey's summary indicator climbed to +0.7 

from +0.4 in the third quarter and -0.1 in the second, the Ottawa-based 

central bank said Monday from Ottawa. It's the last major report 

expected from the BOC before a Jan. 22 interest-rate decision, where 

investors predict Governor Stephen Poloz will hold the G7's highest 

policy interest rate at 1.75%.

     "Business sentiment is broadly positive" outside of Canada's 

western prairie provinces, the BOC said, where energy companies are 

struggling. "Indicators of capacity pressures suggest that economic 

slack has been absorbed and that labour markets have tightened," outside 

of that region, the report said. 

     The tone of the report mirrors Poloz's view the economy is around 

full capacity and inflation will hold around his 2% target. The BOC's 

new consumer outlook survey published Monday backed that up, showing 

households expected inflation of 2.1% in the fourth quarter and 2.2% 

around the end of this year. 

     More companies also reported they would have trouble meeting rising 

demand for a third consecutive quarter, the outlook survey showed. 

     Still, some of the most prominent figures in the business report 

showed marginal weakness. The balance of opinion on future sales growth 

fell to 11 from 23. The measure subtracts the share of respondents 

seeing a slowdown from those calling for faster gains. 

     Investment opinions declined to 11 from 28, the lowest in 3-1/2 

years, the business survey showed. That was somewhat countered by a 

rebound in hiring plans, a relief given a plunge in November's job 

report before a partial rebound in December.

     The share of executives seeing the inflation rate at or below the 

BOC's 2% target over the next two years fell to 61% from 66%. 

     The consumer survey showed imbalances around household finances 

that have deterred the BOC from matching a wave of global interest-rate 

cuts remains. The data back to 2014 showed a pattern of families 

expecting spending growth to exceed income gains, a gap that widened in 

fourth quarter figures. 

     Consumers also saw home prices running much faster than overall 

inflation around Toronto and Vancouver, where lawmakers have stepped 

into curb speculation and Poloz warned last week he's watching for 

signs of froth to emerge again. Ontario prices were seen gaining 5.1% 

and British Columbia prices by 4.8%.

     The BOC surveyed about 100 business leaders between Nov. 13 and 

Dec. 9. The companies are chosen so that they represent the 

composition of gross domestic product. The consumer survey was done from 

Nov. 11 to Nov. 29 and is based on a rotating panel of about 2,000 

respondents.

- MNI Ottawa Bureau; +1-613-314-9647; greg.quinn@marketnews.com

     [TOPICS: M$B$$$,M$C$S$]