The confidence of small and medium-sized business deteriorated further in July. Indeed, the CFIB barometer fell by 1.2 points to 58.2 - the lowest reading since April 2009 - hinting that small businesses are rather pessimistic about an expansion of the Canadian economy over the next quarters. In all, the index shed around 5 points over the first half of 2015 and is still below the 65 mark of an economy growing at its potential.

"Sectoral trends confirm the headline reading since optimism was down in 8 of the 13 industries. More specifically, confidence deteriorated significantly in the retail -8.6 points to 53.6, agriculture -8.3 points to 50, construction -6.0 points to 48.7, and natural resources -6.5 points to 44.8 sectors. Sentiment in the manufacturing sector was unchanged in July, but is down 9.8 points year-over-year. This is somewhat discouraging, suggesting a rotation toward export-led economic growth will likely take some time to materialize. Business confidence was generally positive in the financial services and hospitality sectors +5.0 points each" says TD Economics.

Regionally, confidence rose in the Atlantic Provinces, probably helped by the summer tourist season. Indeed, business sentiment improved in Newfoundland & Lab. +2.4 points to 63.2, New Brunswick +1.7 points to 62.2, as well as in Prince Edward Island +2.3 points to 69 which is now the most optimistic province in Canada. In contrast, sentiment was down in Manitoba -6.4 points to 58.2, Ontario -2.9 points to 60.7, and stands at a two-year low in British-Columbia -4.3 points to 67.5. Confidence in Alberta dipped 0.4 points to 43.9, the lowest level among the provinces.

TD Economics Notes

Small and medium-sized business confidence took another hit in July, somewhat echoing a poor performance of the Canadian economy so far this year. Falling oil prices are also adding to the mix, as the price of the WTI dropped below US$50 after hovering around US$60 for most of the second quarter. This has naturally impacted the confidence of natural resources companies now at its lowest level since June 2009 and is expected to feed into employment in oil producing provinces.

We still expect energy-rich provinces to display the weakest growth profile in 2015-16, while non-energy regions such as B.C, Manitoba and Central Canada should top the growth charts over the same period for more information on our provincial economic outlook, please see the July 2015 Provincial Economic Forecast.

Another major headline in July, the BoC cut its key interest rate (to 0.5%) for the second time this year after the disappointing performance of the Canadian economy so far in 2015. The loonie fell below US$77 immediately after the rate announcement to its lowest level in a decade. Combined with the decline in oil prices and solid demand from the U.S., a weaker Canadian dollar should improve prospects for manufacturers, in general, as well as businesses in the transportation industry, tourism and wholesale.