Business Confidence Remains Stagnant in January

Canadian Economics

  • In January, The Conference Board of Canada’s Index of Business Confidence increased by a modest 1.6 points, reaching 74.5 (2014 = 100). The Index has fluctuated for over a year without consecutive gains or losses.
  • The primary driver of the increase was an 11.4-percentage point rise in respondents who believe now is a good time to expand facilities or invest in machinery and equipment.
  • Although most firms continue to operate below optimal capacity, this survey saw a 2.4-percentage point increase in those operating above capacity.
  • In turn, approximately 45 per cent of firms plan to increase capital expenditures over the next six months, while 24 per cent expect a decrease and 31 per cent anticipate no change.
  • Ontario remained the leading destination for planned investment, cited by 44.2 per cent of respondents, while the Prairies also attracted significant interest at 27.9 per cent.
  • Investment returns remained largely unchanged from six months ago, with about 63 per cent of respondents stating that their firms’ capital returns met expectations.
  • Despite the Index’s climb, respondents were less optimistic about prices. In this survey, 70.8 per cent of firms expect Canadian prices to increase at an annual rate of 3 per cent or less over the next six months, down from 84.6 per cent in October.
  • Respondents were also more pessimistic about Canada’s overall economic state compared to October’s survey, suggesting that business investment could take an unfavourable turn in the future.
  • These results offer valuable insight for our Canadian 5-Year Outlook, which currently forecasts a modest increase in business investment in 2025. The survey was conducted from January 9 to January 23, 2025.

Key Insights

The Index of Business Confidence has remained below 80 points since early 2022. In January, the Index rose by 1.6 points, partially recovering from a 2.4-point decline in October. Over 40 per cent of survey respondents alluded to three main factors negatively impacting their planned investment expenditures: government policies, rising labour costs, and weak market demand. Business investment growth is expected to remain modest until these factors show signs of improvement.

For the second consecutive survey, government policies were the top concern among Canadian businesses. After a prolonged period where high interest rates dominated concerns, government policies—cited by 51.6 per cent of respondents—are rapidly becoming a common deterrent toward planned investment spending. Among those who identified government policies as a concern, approximately 58 per cent pointed to federal policies, 27 per cent to provincial, and 15 per cent to municipal.

Firms are anxiously awaiting February 1 to see if U.S. President Donald Trump will move forward with his proposed tariff policy on Canadian goods. Although tariffs were not enacted on inauguration day, President Trump has indicated that his tariff plan could be implemented as early as February 1. If tariffs are imposed, they would severely impact Canada’s automotive manufacturing industry (among others) as inputs often cross the border multiple times, and the likelihood of retaliatory tariffs rises. While Canada has successfully attracted investment in oil and gas, as well as clean energy projects in renewable power generation, battery plants, and electric vehicles, these efforts have generally been dependent on subsidies. Overall, stimulating investment has been a persistent challenge in Canada over the past decade, and tariffs would only exacerbate this issue.

For more on the potential impact of U.S. tariffs on Canadian business investment, please see our earlier insight, Donald Trump’s 25 Per Cent Tariff Threat.

Comments