Corporate Canada's mood is growing more optimistic as export business picks up, but that isn't translating to improved prospects for a long-awaiting upturn in capital investment, the Bank of Canada's latest survey of businesses shows.

The central bank's quarterly Business Outlook Survey showed that firms are both reporting stronger sales growth over the past 12 months, and increased expectations of higher sales over the next year, "largely reflecting increased orders or sales inquiries from international customers." Many reported that stronger U.S. demand is already lifting their sales. Businesses also expressed confidence that domestic sales will improve, emerging from "a period of fairly weak growth."

But crucially, this brighter outlook has done little to change companies' intentions to invest more in their machinery and equipment – considered by the central bank to be a crucial missing element in Canada's uneven economic recovery. While the balance of opinion in the survey continued to point to higher spending in the next 12 months, the percentage of firms indicating they expect to increase their spending declined compared with the July survey. The survey suggested that companies remain tentative, and investment plans illustrate the ongoing two-speed nature of the economic recovery along geographic lines.

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"Plans to increase investment spending are somewhat more widespread among those with international sales and those headquartered in Western Canada," the survey report said. "For many businesses, the primary motive for investment continues to be upgrading and replacing existing capital," rather than expansion, it said.

While businesses' plans for capital investment took a step back, the survey showed that the majority of firms intend to increase their employment levels in the next 12 months. The report said that the hiring intentions were "widespread across all regions and sectors."

The Business Outlook Survey has grown over the past two years to become one of the central bank's most highly anticipated documents, as the central bank has increased its emphasis on the need for a recovery in exports and business investment as crucial elements to sustaining healthy growth in the Canadian economy. The lack of business investment has become a major concern, as it is considered critical to expanding economic capacity and increasing employment, both of which are key elements to longer term economic growth.

Firms also reported a modest increase of pressures on their production capacity – another key indicator for the central bank, as it tries to gauge how much slack remains in the Canadian economy. This reversed a slight easing of pressures that companies reported in the July survey, but still suggests that most firms aren't facing significant capacity pressures.

"Export-oriented firms were more likely to anticipate some difficulties in meeting an unexpected increase in demand than firms selling only to domestic markets," it said. "The number of firms anticipating significant difficulty remains low."

The report noted that the percentage of firms reporting labour shortages remains low, and actually fell slightly in the latest quarter.