Search

Business Confidence Still Searching for Rhythm

Canadian Economics

By: Jake Lenarduzzi

  • The Conference Board of Canada’s Index of Business Confidence fell by 2.4 points in October, reaching 72.9 (2014 = 100). Over the past year, the Index has not recorded consecutive gains or losses.
  • The main contributors to the decline were a 4.5-percentage point drop in respondents who feel it is a good time for business investment, and a 7.0-percentage point rise in those expecting their firms’ financial positions to deteriorate in the coming months.
  • Ontario remained the top choice for planned investment but fell below 40 per cent of respondents for the first time in two years. Meanwhile, the Prairies garnered notable interest, with more than 30 per cent of respondents selecting the region for the first time since early 2022.
  • Investment returns were virtually the same as they were six months ago, with 58.1 per cent of respondents reporting that their firms’ rates of return on capital met expectations.
  • Most firms are still operating below optimal capacity to some degree, with fewer than 10 per cent operating above capacity and less than 30 per cent at (or near) capacity.
  • About 42 per cent of firms expect to raise their capital expenditures over the next six months, whereas 21 per cent anticipate a decrease and 37 per cent foresee no changes.
  • Despite the Index’s decline, respondents have become more optimistic about prices, with nearly 85 per cent now anticipating that Canadian prices will increase at an annual rate of 3 per cent or less in the next six months.
  • Respondents also showed increased optimism about Canada’s overall economic conditions compared to July’s survey, suggesting that business investment could take a more positive turn in the future.
  • The findings from this survey broadly align with our Canadian 5-Year Outlook, which forecasts a rise in business investment in 2025.

Key Insights

The Index of Business Confidence has yet to experience a significant bounce back after declining for nine consecutive quarters between 2021 and 2023. In October, the Index decreased by 2.4 points, reversing a 2.1-point increase seen in July. More than 30 per cent of survey respondents pointed to seven key factors that are adversely affecting their planned investment expenditures. These factors include government policies, rising labour costs, high taxes, weak market demand, a shortage of qualified staff, high interest rates, and the rising cost of capital goods. Business investment growth is expected to remain modest until these factors show improvement.

High interest rates are no longer the leading concern for Canadian businesses. Presently, 35.1 per cent of survey respondents feel that high interest rates are negatively impacting their firms’ planned investment spending. Although this concern remains significant, it has declined by over 13 percentage points since the previous survey. The Bank of Canada recently reduced its key interest rate by 50 basis points to 3.75 per cent, marking the fourth consecutive rate cut since June. Looking ahead, most respondents expect their firms’ borrowing rates to remain the same over the next six months, while around 37 per cent anticipate a decrease, and only 9 per cent foresee an increase.

The Index last exceeded 90 points in four sequential quarters back in 2017–18, reflecting ongoing apprehension among firms in the post-pandemic era. Some indicators are pointing toward a slow turnaround in business investment. In addition to our survey results, weak capacity utilization rates and a faint ratio of business openings to closures over the past year are worrisome trends for future capital spending. We do foresee a turnaround starting next year, driven by planned investments in automotive manufacturing and the resource sectors. But these underlying trends are limiting the growth potential in Canada’s investment landscape.

person looking up in the middle of the streets.

For further insights into Canadian business investment, please refer to Canada’s Five-Year Business Investment Outlook.

Related Insights

See More Insights

Comments