Ottawa, May 7, 2018—Business leaders are becoming more pessimistic about the state of the Canadian economy. The Conference Board of Canada’s Index of Business Confidence fell 6.9 points to 93.1 in the first quarter of 2018, the lowest level in the last six quarters.
A number of factors are contributing to this pessimism. Businesses do not expect the rapid sales growth they saw in 2017 to continue. They state concern about the impact of government policy on business competitiveness and about the availability of labour. They also report increased concern about the competitiveness of the Canadian economy in the face of U.S. tax cuts, a weak Canadian dollar, and an uncertain future for NAFTA.
“Canada’s businesses had been experiencing relatively high levels of confidence in the economy throughout most of 2017 but, business confidence reversed course in the final quarter of the year. The first-quarter results for 2018 are closer to the 2016 average, a sign that businesses see the economy moving into a new, slower-growth phase,” said Matthew Stewart, Director, National Forecasting, The Conference Board of Canada.
Much of the decline in the index came from significantly weaker investment intentions and financial expectations. The share of firms believing that now is a good time to invest in machinery and equipment (M&E) declined dramatically from 52 per cent to 34 per cent. At the same time, the share believing that now is a bad time to invest in M&E rose. This increase may be due in part to firms’ expectations about their financial position. Fewer firms are expecting sales to perform as well as they have in the past and their financial position to improve in the next six months.
When asked what factors are adversely affecting planned expenditures, the most frequent response was government policy, cited by half of the firms as negatively affecting them in one way or another. A shortage of qualified staff was the second-most-frequent response, noted by 40 per cent of firms. The third-most-common response was the rising cost of labour. These top three responses were the same as in the previous survey. Meanwhile, there was a noticeable uptick in the share of firms citing weak market demand, the rising cost of capital goods, better opportunities abroad, and the depreciation of the Canadian dollar as factors holding them back.
Firms’ expectations for the overall Canadian economy have also worsened considerably. The balance of opinion (respondents believing economic conditions will be better in six months minus those who project that conditions will be worse) was at 19 percentage points in the previous survey. It is now negative, at –6 percentage points.
The survey of business confidence was conducted from March 9, 2018 to April 13, 2018.