Business Leaders Express Economic Concerns
Canadian businesses are currently facing a challenging economic environment, as indicated by recent surveys. The CPA Canada’s Q4 Business Monitor survey, which gathered insights from 250 professional accountants in key roles across various industries, highlights a growing sense of unease. A significant 50% of these leaders are pessimistic about Canada’s economic prospects, in stark contrast to the mere 16% who feel optimistic. Approximately one third of respondents (34%) maintain a neutral stance.
A major concern for these businesses is the effect of interest rates. A vast majority (91%) believe these rates negatively impact the Canadian economy, with 71% feeling the direct adverse effects on their own companies. In addition, inflation is another significant challenge, with 73% of the survey participants indicating it’s harming their business operations. Furthermore, six out of ten predict this trend will continue for at least the next six months.
Rosemary McGuire, CPA Canada’s Vice-President of Research, Guidance, and Support, commented, “Our survey results reveal a perception of deteriorating conditions in the Canadian economy, whether or not we are in a technical recession.”
Positive Revenue Expectations Amidst Pessimism
Despite the prevalent pessimism, there is a silver lining. About 63% of the surveyed leaders expect an increase in their revenues over the next year. Additionally, 54% foresee higher profits, and 37% anticipate an increase in their workforce. This comes even as 47% of companies report a shortage of employees, while 24% believe they have more than necessary.
Weak Private Investment and Modest Economic Growth
The Canadian Federation of Independent Business (CFIB) also shares a cautious view of the near-term economic prospects. According to the CFIB’s Main Street Quarterly report, the economy is expected to grow by a modest 0.5% in Q1 2024, following a slight decline in Q4 2023 (-0.2%). The report also notes a stabilization in the Consumer Price Index (CPI), with fewer firms increasing prices or doing so by smaller margins.
A concerning trend highlighted in the report is the historically low level of private investment plans, which have plummeted by 12% since Q3. Simon Gaudreault, CFIB’s chief economist and vice-president of research, attributes this decline to low long-term confidence among small business owners. He explains that the combined effects of general uncertainty, cost pressures, and tax increases are making business owners hesitant to invest.
The CFIB’s analysis presents a mixed picture: while sales and employment are generally positive, investment and optimism remain weak. Gaudreault adds, “We expect a short-lived contraction in the overall economy, with a return to positive growth in early 2024. However, a real recovery for the small business sector may take longer due to the challenging business environment.”
He concludes by suggesting that with inflation nearing the Bank of Canada’s target, a less restrictive policy might be considered from spring onwards.
