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Business Confidence in Canada Hits Two-Year High

Ottawa, September 7, 2017—Canadian business leaders’ optimism about investment spending and financial conditions has reached its highest level in two years. The Conference Board of Canada’s Index of Business Confidence rose 5.7 points to 104.2 in the second quarter of 2017. This marked the third consecutive increase in the index, following persistent weakness dating back to the second half of 2015.

“With expectations of a generally strong U.S. market, plus solid domestic GDP numbers, Canadian firms seem to be increasingly willing to boost their capital spending,” said Sabrina Bond, Economist, The Conference Board of Canada.

Highlights

  • Business Confidence rose 5.7 points to 104.2 in the second quarter of 2017.
  • Three-quarters of Canadian firms now intend to increase investment spending over the next six months.
  • Government policy remains the greatest barrier to business investment, say Canadian executives.

Overall, three-quarters of Canadian firms now intend to increase investment spending over the next six months, up from two-thirds in the spring survey. And fully one-third of businesses plan to increase capital expenditures by more than 10 per cent this year, up from 23.2 per cent last quarter. Optimism surrounding planned investment is recovering even more quickly in Ontario, where nearly four out of five firms are planning capital expansions over the next two quarters and 60.5 per cent believe now is a good time to boost their spending on plant expansions and machinery. Although uncertainty regarding the outcome of trade negotiations with the U.S. might still be discouraging some firms from investing, current survey data suggest that perceived trade risk is not the limiting factor it once was for Canadian firms, particularly in Central Canada.

Canadian firms also remain upbeat about their own financial conditions going forward. When considering their companies’ financial status, 93 per cent of Canadian business leaders said they expect stable or improved profitability over the next six months (up 14.8 points from one quarter ago). And 87.5 per cent said they expect internal rates of return on investment to be as good or better than they were six months ago—up 6.8 points from the last survey.

However, optimism about investment spending was tempered by a small uptick in Canadian executives who perceived impediments to business investment. Government policy remains the greatest barrier to business investment, say Canadian executives, with 48.0 per cent of survey respondents identifying this factor as a brake on private capital spending. This is almost double from early 2016 where only 26 per cent of respondents cited government policy as an impediment on investment. At the federal level, lack of harmonization on product labelling with U.S. standards (particularly on health products), uneven tax treatment of corporate entities within industries, and the imposition of a carbon tax were common concerns. Canadian businesses also expressed concern about provincial electricity pricing regulation. Ontario-based businesses, in particular, flagged the provincial government’s plans to raise minimum wages and their concern about the ability to pass the costs to consumers.

The survey was conducted from July 21 to August 18, 2017.


For more information contact

Corporate Communications
613-526-3280
corpcomm@conferenceboard.ca


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