- In July, The Conference Board of Canada’s Index of Business Confidence fell 1.6 points to 79.1 (2014=100), sitting at the lowest level since the third quarter of 2020. The survey was conducted between June 27 and July 12, 2022.
- Worries of Canadian businesses on prospects for the economy continues to escalate. Eighty-four per cent of survey respondents said that they expect overall economic conditions in Canada to worsen or remain the same over the next six months. This is roughly 13 percentage points higher than the previous survey in April 2022.
- Sixty-four 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, which is a minor improvement over the 67 per cent in April. Meanwhile, 17 per cent believe that prices will increase at annual rate of 8 per cent or greater.
- Seventy-one per cent of respondents believe that their firm’s financial position will worsen or remain the same in the next six months. Twenty-nine per cent of respondents believe that their firm’s financial position will worsen, which is 6 percentage points higher than last time.
- When it comes to capital expenditures, 27 per cent of respondents expect the level to decline over the next six months, which is 5 percentage points higher than last time.
- A staggering 66 per cent of respondents feel that rising labour costs are adversely affecting their level of expenditure over the next six months. This is exactly 20 percentage points higher than the previous survey. Other areas of concern include rising cost of capital, shortage of qualified staff, and high interest rates.
- Supply chain concerns also remain heightened with only 23 per cent of respondents expect an improvement over the next six months. Twenty-six per cent believe supply chain challenges will worsen while 52 per cent believe it will remain the same.
The last time the Index of Business Confidence declined for the fourth-consecutive time was during the 2007–08 financial crisis. In this latest survey, a question on the likelihood of a recession was included. More than half the respondents believe that the next economic recession in Canada will be between six to twelve months from now. An expectation for an upcoming recession could lead businesses to hire fewer workers in anticipation of lower future sales. With labour costs already being the number one factor adversely affecting businesses’ level of planned investment expenditures, a potential cooling down of the labour market should not be out of the question if inflation remains elevated and recession fears mount.
The latest worry for Canadian business executives is the path of rising interest rates. Thirty-six per cent of respondents are saying high rates are adversely affecting their level of planned investment expenditures. Looking back to last year, by the second quarter of 2021, the index had reached 104.6 (2014=100). Business executives were optimistic as public health restrictions eased and the economy started re-opening. However, the sentiment quickly shifted with the arrival of the Omicron variant and supply chain disruptions continuing to pose challenges. On top of that, the start of 2022 saw Russia invading Ukraine, energy prices spiking and inflation accelerating. Fast forward to today and rising interest rates is an additional factor holding back investment expenditures for some businesses. If inflationary pressures persist and the Bank of Canada continues its hiking policy, more businesses could end up lowering, delaying or even cancelling their planned investment expenditures until the economic outlook is more clear.
Supply chain disruptions continue to pose challenges. One area where respondents have consistently expressed concerns about over the past year is supply chain disruptions. Seventy-seven per cent of respondents who believe supply chain disruptions will worsen or remain the same over the next six months pointed primarily to the war in Ukraine. Other reasons include a potential recession slowing down demand and investment, ongoing labour shortages, and lack of improvement in supply conditions. Since the beginning of the year, congestion has improved slightly at high-volume ports in Western North America such as Vancouver, Oakland, and Los Angeles.1 However, overall congestion on the continent still remains elevated compared to pre-pandemic levels, which is one reason why most businesses continue to feel pessimistic about supply chain challenges improving over the next six months.