OTTAWA — Optimism about the Canadian economy among business directors has waned over the past year, according to a new survey, as various domestic political squabbles, rising interest rates and uncertainty surrounding the North American Free Trade Agreement talks dampen Canada’s business outlook.
An annual survey from the Institute of Corporate Directors (ICD) released Monday found that 33 per cent of respondents expected the Canadian economy to improve in the next two-to-five years, down from 52 per cent in 2017. In the 2018 survey, 34 per cent of respondents now expect the Canadian economy to worsen while 26 per cent expect it to stay the same.
The findings come as the Canadian economy is expected to slow significantly from its red-hot growth in 2017. Canada’s GDP grew 3.1 per cent in 2017, but edged down 0.1% in January and managed a tiny 0.4 per cent gain in February. However, wholesale sales rose 1.1 per cent to $62.8 billion in March, while manufacturing sales were up 1.4 per cent, above analyst estimates, according to Statistics Canada.
“Despite positive economic news from Statistics Canada, Canadian directors see trouble ahead for the Canadian economy,” the report said.
The results could point to a divide between the economic outlook in the U.S. and Canada, after accounting firm KPMG released a survey of American CEOs earlier this week that suggested economic optimism in the U.S. is at its highest in years.
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The ICD survey asked 584 of its members about various business risks including NAFTA, rising interest rates and U.S. corporate tax reform.
NAFTA was considered among the main headwinds for companies, as well as political uncertainty within Canada, mostly tied to “strained” inter-provincial infighting like the dispute between Alberta and British Columbia over the Trans Mountain pipeline expansion, the report said.
Only eight per cent of respondents expected Canada’s political situation to improve “somewhat” or “significantly” over the next two-to-five years, while 34 per cent expected the situation to worsen “somewhat” or “significantly.” Fifty-eight per cent of respondents said they expected it to stay the same.
Asked how confident directors were that Canada could “successfully re-negotiate or modernize” the NAFTA trade agreement, 46 per cent were somewhat confident while 41 per cent were “not very confident” and 10 per cent “not at all confident.”
Asked whether Canada’s economy could stay strong if officials fail to reach a deal, 46 per cent were “somewhat confident” while 41 per cent were “not very confident.”
On U.S. corporate tax reform, 24 per cent of respondents said the impact on their company or non-profit would be explicitly negative, while 15 per cent said it would be positive. Some companies with U.S. operations have seen the changes as an overall positive, as it could create new investment opportunities for their businesses south of the border.
Meanwhile, 41 per cent of respondents said minimum wage increases would be negative for their company, while six per cent expected it to be positive. Fifty-eight per cent said rising interest rates in Canada would be negative for their company while 21 per cent viewed it as a positive.
Bank of Canada Governor Stephen Poloz has raised key interest rate three times in the past year, up to 1.25 per cent, mostly to temper rapid growth in the first half of 2017.
Most analysts now expect the bank to hold rates in its next decision May 30, as trade uncertainty and a slight weakening of the Canadian dollar, among other factors, but see interest rates gradually rising through 2018 and 2019.
Asked what the biggest external risk facing their company or non-profit was, most respondents (42 per cent) cited cyber risk, followed by regulatory complexity and government changes (18 per cent), disruptive technology (17 per cent) and global economic instability (13 per cent).
Directors were slightly more confident in the global economy than in Canada, with 36 per cent of respondents saying it would improve “somewhat” in the next two to five years. Twenty-seven per cent said it would worsen somewhat while 36 per cent said it would stay the same.
The ICD survey was conducted by Environics Research between March 7 and April 4, 2018, and yielded a response rate of 4.7 per cent overall. That sample size is considered accurate to within 3.8 percentage points, 19 times out of 20.