Our recommendation for business leaders is to access information from several reputable sources of information that offer national, regional, and industry-specific perspectives.
Published: September 12, 2022
Updated: September 12, 2022
Canada's economy has fully reopened and largely recovered following the COVID-19-induced economic downturn, but the outlook is anything but rosy in the immediate term, as forecasters predict a moderate recession ahead.
The Canadian Chamber of Commerce presents an asymmetrical recovery among Canadian businesses in its latest Canadian Business Trends and Insights report, released in June 2022. The survey was conducted in April and May 2022 with 16,678 Canadian business respondents from across the country. Here are some highlights:
- One-third of Canadian businesses have not fully recovered from the pandemic. Almost 30% of respondents said they are in a worse overall position than they were in 2019.
- Larger firms with 100 or more employees have recovered fastest, while recovery among smaller and minority-owned businesses is less significant.
- Businesses in the professional services, manufacturing, and finance and insurance industries are leading the recovery.
- Over half of businesses (52%) reported they either cannot take on more debt or don't know if they can (up from 47% in the last quarter). Smaller firms, businesses in high-contact services, and the construction, health, and social sectors are the most constrained.
- Besides rising inflation and interest rates, top business headwinds include rising input costs, transportation costs, the cost of insurance, difficulties recruiting and retaining labour, and supply chain challenges.
- Over the next quarter, a record 39% of firms expect to raise prices to contain cost pressures.
This sets the stage for how businesses will head into what the Royal Bank of Canada (RBC) predicts will be a moderate and short-lived recession in 2023.
"Canada's economic growth has fired on all cylinders following pandemic shutdowns. But a historic labour squeeze, soaring food and energy prices, and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023"
Canada's inflation rate hit 8.1% year-over-year in June 2022, the highest since January 1983. The spike forced central banks into aggressive action. The Bank of Canada raised its benchmark interest rate by a full percentage point to 2.5% the following month, the largest one-time increase since 1998.
And more tightening is likely on the way. In a July press conference, Bank of Canada governor Tiff Macklem didn't rule out more increases to interest rates (stating, “How high our policy rate needs to go will depend on how the economy and inflation evolves.”) and adding that the bank doesn't expect the inflation rate to come down to 3% until the end of next year, and won't get back to its 2% target until the end of 2024.
Adding to the cost pressures is one of the tightest labour markets in generations, as Canada's unemployment rate hits historic lows, holding steady at 4.9% in July.
Another wildcard are the Omicron subvariants creating uncertainty as to what the upcoming fall and winter seasons will bring in terms of lockdowns, business restrictions, and overall case counts.
Three factors to consider when evaluating the changing business landscape
Given a highly uncertain economic backdrop in Canada and globally, how should leaders make key business decisions? We recommend the following three-pronged approach.
Therefore, it's imperative to scrutinize the information you receive and ensure it comes from credible sources:
- Is the data source reputable?
- Does the source have an expertise in the field?
- Is this information helpful in the context of relief or recovery type of measures?
- Is this a sector-specific prediction/opinion?
- What are the long-term trends in your industry/sector/geography?
- What are the long-term trends globally you should be aware of?
A detailed approach
First, analysis provided by leading market intelligence firms such as Oxford Economics is a great starting point for actual macroeconomic data. Economic analysis from Canada's major financial institutions can also offer great insights about the future state of the Canadian economy.
Other useful sources of information from a policy and advocacy perspective are available from organizations such as the C.D. Howe Institute, the Canadian Chamber of Commerce, local chambers of commerce, and boards of trade, as well as national and regional industry organizations such as Business Council of Canada and Tourism Industry Association of Ontario (TIAO), to name a few.
A black swan event like the COVID-19 pandemic could have long-lasting effects on economies, markets, and consumer behaviour. To survive, the need to be agile and nimble has never been greater.
Some sectors have already reinvented themselves to the new way of doing business, while others have struggled to chart a new path. For example, e-commerce is more prevalent in Canada than before the crisis as the buying and selling of goods and services over the Internet has become standard for many companies and consumers. In the meantime, the government will continue to intervene with fiscal and liquidity measures to prop up specific sectors of the economy that are struggling.
Our recommendation is for business leaders to be equipped with timely and accurate information about various government support programs targeting their industry sector. Moreover, your ability to access real-time data on consumer behaviour and buyer information will help to understand how to adjust your business model temporarily or permanently and can put you ahead of your competitors.
Third, long-term trends in play prior to COVID-19 will prevail and require innovative solutions.
Canada will continue to attract top talent and skilled foreign workers who will continue to play a critical role in the country's labour market. As a result, policy makers and senior business leaders will need to devise effective strategies to integrate new immigrants into the economy and retrain and upskill existing talent.
Tackling a massive physical infrastructure backlog will be top of mind as a way to get the economy going and create high-paying jobs. More than ever, investment in digital infrastructure will help bridge urban and rural divide and unable Industry 4.0 sectors. Canada's ability to near-source advanced manufacturing is critical to human survival sectors such as pharmaceuticals and medical devices will be top of mind.
Distance learning will become a new norm not only for children, but also for adults. Canadian businesses' ability to scale up and go global will also be critical as a way to bounce back from a major economic fallout.
Our recommendation is to keep an eye on long-term trends that were prevalent in Canada and globally long before the onset of the COVID-19 pandemic. This task can be achieved by conducting environmental scans, market assessments, and economic impact analysis.
How BDO can help
Our Strategy & Operations team has helped a number of organizations re-evaluate their business strategy and adapt to a changing economic environment. We provide the following services:
- Feasibility and cost benefit analysis
- Economic modelling, forecasting, and scenario planning
- Environmental scans
- Economic impact analysis
- Strategic and implementation planning
- Sector strategies
- Market demand assessments
- Developing funding/financing applications