Quick take

Canadian businesses have a lot to worry about

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  • In February, The Conference Board of Canada’s Index of Business Confidence fell 1.8 points to 83.8 (2014=100) and now sits at its lowest level since the third quarter of 2020. The survey was conducted between January 24 and February 7, 2022.
  • Fifty per cent of survey respondents said that they expect prices in Canada to rise at an annual rate of 5 per cent or greater over the next six months.
  • 64.1 per cent of businesses surveyed believe that their profitability will worsen or remain the same over the next six months, which is 3.2 percentage points higher than the last survey we did in November 2021.
  • Roughly 55 per cent of respondents believe that shortages of qualified staff will negatively impact their planned investment expenditures. Similarly, 54.3 per cent of respondents feel the same about rising labour costs. Both numbers are the highest on record since the survey started in 1993.
  • When asked if supply chain disruptions would improve over the next six months, 81.9 per cent of respondents said they expect them to worsen or remain the same.
  • Overall, respondents were less optimistic about the Canadian economy than our previous survey. 36.2 per cent of respondents said they expect economic conditions in Canada to be better six months from now. In contrast, 63.8 per cent thought conditions would remain the same or worsen, which is 3.6 percentage points higher than in November.

Key insights:

  1. Business optimism continues to fade. Most businesses surveyed don’t think that economic conditions will improve in Canada over the next six months. Companies are attributing their weaker outlook to rising wage demands, labour shortages, increasing cost of capital, and a withdrawal of government support measures. Respondents also expect weaker market demand over the next six months, which does not come as a surprise given the rising inflation.
  2. When asked about what factors are adversely affecting businesses’ planned investment expenditures in Canada, roughly 35 per cent of respondents cited high taxation as one of the factors. In addition, 9.3 per cent of the businesses believed that higher interest rates on the horizon are another factor negatively impacting their planned expenditures. We don’t expect businesses to get much respite this year regarding taxes and interest rates. Corporate taxation isn’t likely to ease any time soon, given the pandemic-induced fiscal spending. What’s more, we expect the Bank of Canada to raise rates four times this year, starting as soon as next month.
  3. Despite the January lockdown in Ontario, 47.1 per cent of the businesses surveyed expect the bulk of their planned investment expenditures over the next six months to take place in Ontario (compared to 41.4 per cent in the fourth quarter of 2020). An increasing number of businesses continue to find Ontario the best place to make their investments. But the same can’t be said of Quebec. Only 5 per cent of respondents expect their planned investment expenditures over the next six months to take place in Quebec (compared to 16.2 per cent in the fourth quarter of 2020).

Note: The Conference Board of Canada’s Index of Business Confidence summarizes Canadian business executives’ views on the state of the economy and is a reliable leading indicator of investment spending.

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Sasan Fouladirad

Sasan Fouladirad

Economist

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