What’s the sentiment of Canadian businesses right now?
Boardroom Sentiment: A Survey of Canadian Business Leaders reveals their thoughts on the economy, their businesses and market challenges and opportunities.
15 November 2023 11 min read
Background and Methodology:
- Ipsos conducted this survey for ATB of financial decision-makers across Canada in companies earning $10 million or more in revenue per year.
- To better understand the economic outlook of businesses based in Alberta, the province was oversampled with 30 of the 150 responses coming from Alberta.
- View the full survey
What’s on the minds of the people leading Canada’s midsize and large companies? That’s what ATB set out to discover with the semiannual Boardroom Sentiment: A Survey of Canadian Business Leaders. This article covers insights and findings from the second survey, conducted in September 2023. The first survey was conducted in March and April of 2023 and is referred to in this article for comparison purposes only.
Here are the main findings.
The overall outlook is cautiously optimistic, and shifting.
Canadian businesses are cautiously optimistic about both the economy and their own business performance. While there’s more concern evident in the short term (“right now” and “in the next 12 months”), confidence increases in the next five years. Among Alberta-based business leaders, that optimism trends higher: 83% indicate they are optimistic (either “very” or “somewhat”) about the business environment in the next five years, compared to 71% in the rest of Canada.
We see a similar trend regarding businesses’ outlook on their own performance. Their optimism increases over time, and Alberta-based companies are notably more positive than their peers in the rest of Canada for the next five years: 90% vs. 73%.
Mark Parsons, Chief Economist at ATB, says there are a few factors driving Alberta’s more positive outlook, which is likely also contributing to stronger sentiment in the province. “Alberta’s population is growing much faster than it is in the rest of the country, including record levels of interprovincial migration. This in turn is supporting the housing market and adding to consumer spending. As well, the energy sector is in expansion mode again. Companies are increasing their levels of investment, and production is rising. That’s providing an offset here in Alberta. Emerging growth in other sectors in the province, such as tourism, hydrogen, biofuels, high tech and aviation, may also be contributing to the mood."
With the economic volatility the province experienced in the last several years, particularly with respect to oil prices, Alberta businesses have become a resilient bunch. So it’s no surprise that ATB’s business clients share this positive outlook, “Both in the short term and one to five years out, businesses are optimistic about what the future holds,” says Chris Turchansky, Group Head of ATB Business. He notes that while Alberta has done a good job of diversifying itself, the energy industry is still a key contributor. And with it in expansion mode, that establishes an “unwritten tone” in the province.
That said, compared to the survey conducted in March/April 2023 of 150 different companies, that outlook has diminished. Canada-wide, optimism about the business environment has declined between 15% and 22%, depending on the timeframe. For business performance, it has decreased between 14% and 20%.
“Businesses are dealing with a really uncertain interest rate environment because of high, and unpredictable, inflation,” Parsons explains. “There’s uncertainty around how long this will last and how high interest rates are going to be, and if they’re going to go any further. Also playing into the outlook are concerns regarding conflict in the Middle East and Ukraine and whether the US and other advanced economies will achieve a soft landing by bringing down inflation without a big jump in the unemployment rate and contraction of the economy."
The June 2023 Alberta Business Expectations Survey, conducted by the Business Council of Alberta (BCA) of its member CEOs, reveals a similar positive outlook, but one less shaken by the current environment. “Higher interest rates and ongoing concerns of a global recession have weighed little on the optimism of Alberta businesses,” it reports. Conducted three times a year, the June survey indicates upticks over its February survey. For example, 59% of businesses report an increase in recent, forward-looking indicators such as new orders or sales inquiries, compared to 54% in February.
The Bank of Canada’s Business Outlook Survey—Third Quarter of 2023 reflects a more sombre mood. The Bank of Canada (BoC) conducts interviews with senior management of about 100 firms that reflect the composition of the gross domestic product of Canada’s business sector. The Business Outlook Survey indicator, which is a summary measure of the main questions, continued its decline in Q3, reaching its lowest point in over a decade, aside from a short pronounced drop in 2020, early in the COVID pandemic.
Concern about a recession is a growing concern. Boardroom Sentiment shows that 71% of business leaders expect a recession in Canada in the next six months—an increase of 8% from the April survey. The Canadian economy has slowed dramatically, Parsons points out, and the expectation is that a “very significant slowdown” will extend into the first quarter of 2024. “That’s when the lagged impacts of high interest rates are going to be felt.”
While Canada has been hit harder than the United States, Alberta is performing better than many other provinces. The feeling is that, if Canada enters a recession, it will be relatively mild, Parsons explains. “The risks are elevated, and there is some chance the economy will contract more than we’re expecting.”
Businesses are positive about their own operations.
When it comes to both their own growth and relative performance, businesses are generally positive, with 80% of respondents reporting that their businesses are in either “moderate” or “rapid” growth mode.
Turchansky observes this growth mindset among ATB’s business clients—with limits. “Lots of businesses right now are looking to accelerate growth,” he says. “They see great potential in terms of what the growth could be.” But it’s a cautious optimism, one tempered by ongoing labour issues and uncertain economic conditions.
When companies do look to grow the business, it’s often by attracting more clients in an effort to expand their core business model. However, Turchansky says the pandemic sparked Alberta businesses’ “amazing ability to innovate.” The innovations that emerged have created new markets and opportunities throughout the province that businesses are looking to capitalize on.
Companies are also relying on innovation in the form of technological advances to help them execute their growth. Most (92%) of business leaders say access to new technology is relevant to the successful implementation of their strategy. The challenge, Turchansky says, is keeping up with the speed of tech. He often sees clients grappling with the pace at which they should introduce technology into their business.
The BCA survey reveals similar growth aspirations, with 60% of respondents planning to add jobs and 52% planning to increase their investment in machinery and equipment over the 12 months following this June survey. Similarly, 39% of respondents from the BOC anticipate an increase in employment levels in the next 12 months, and 38% expect their investment spending on machinery and equipment to rise during the same period1.
On the topic of relative business performance, 67% of business leaders interviewed for Boardroom Sentiment believe their business is outperforming others (either “much” or “somewhat” better) in the same industry. This is an important indicator, showing the confidence leaders have in their own operations and long-term success.
Economic uncertainty, labour and interest rates top concerns.
The top challenges identified by businesses in Business Sentiment are economic uncertainty/recession concerns (23%) and lack of skilled labour (21%). Other labour-related issues aren’t far behind: labour shortages and additional labour costs due to inflation each came in at 17%.
Parsons explains that although Alberta is experiencing high migration, it takes a while for new immigrants to adjust and find employment. While the number of people moving to Alberta is helping employers fill job vacancies, there’s a lag. And certain types of workers are proving more elusive. “Businesses are still saying they’re having a hard time finding skilled workers,” says Parsons. “We’re seeing persistent vacancies in some sectors, for example, construction and food and accommodation.”
In a recent roundtable discussion with business clients, Turchansky had the same takeaway: their number one concern is the labour market. “Companies are still having difficulty finding the right balance and the right sort of people to drive the productivity they require going forward.” The BCA survey backs that up: 56% of BCA respondents indicate they are having trouble filling positions to help them meet demand.
The Boardroom Sentiment survey shows that interest rates are also top of mind, with 89% of Canadian business leaders reporting that ongoing rate hikes have impacted their confidence in the economy. Rising rates have resulted in knock-on effects on companies’ gross margins, pricing and ability to repay debt.
In the client roundtable, Turchansky says that interest rates were Alberta businesses’ number two concern. “The most common questions are when rate hikes are going to stop and when rates will come back down,” he says. “They’re looking for stability in the market, so they have an idea of what the cost of growth will be into the future.”
Without knowing how long the current environment will last, companies are left wondering how, or if, they should adjust, whether that’s by repositioning the company or passing along increased costs to the end consumer. Should they grow into the current market or be more cautious and patient? For now, especially in businesses that can’t easily pass along pricing increases, Turchansky says many are looking inward to control costs. “Lots of people are making sure they’re taking advantage of every opportunity to drive efficiencies. At the same time, they’re looking at how they can expand revenue opportunities.”
The Business Council of Alberta (BCA) and Bank of Canada (BOC) surveys echo the concerns. Terms and conditions for obtaining financing are tighter, say 59% of BCA respondents, and they had more difficulty accessing credit in the few months leading up to the survey. In the BOC survey, those reporting negative impacts because of interest rate increases grew since the second quarter—76% of goods-based businesses and 73% of service-based report negative impacts2. More than half of all companies believe the effects of tightened monetary policy are not over yet, and 47% think they are only just starting.
The majority see many opportunities for creating value.
Things might be slowing down and the confidence in the economy changing, but, overall, three-quarters of businesses feel there are favourable areas for them to create financial value for customers and shareholders.
Specifically, 81% of Canadian business leaders identify access to advances in new technology as a favourable factor. Following that is the ability to diversify products or services (79%) and access to capital and attracting the best talent (both 76%). The macro-environment ranks high too, with 73% saying it’s favourable. However, this is a decrease of 13 points since the spring ATB survey.
On the diversification front, Turchansky says that over the last several years, Alberta has done a good job of diversifying its economy. “It’s important we continue down that road,” he says, “knowing that energy in particular, as well as agriculture and other key sectors of the Alberta economy, will play an important role into the future.” He cautions that often people expect massive change to happen overnight. And while Alberta is on the right path, diversification takes time—patience is required.
We also need to broaden the definition of diversification, says Parsons. “Quite often diversification becomes ‘this industry vs. that industry.’” But he points to how the energy industry has diversified itself: with carbon capture, hydrogen and emissions-reducing solvents, for instance. And the ag sector, with the growth of food processing capacity or craft breweries.
Despite ongoing challenges in finding labour, both the BCA and BOC surveys indicate some developments working in businesses’ favour. More than a third (36%) of BCA respondents report that labour shortages are less intense than they were a year ago. BOC firms similarly saw an easing of labour shortages vs. the last year. As a result, they are having less difficulty attracting high-skilled labour.
Not to be forgotten when it comes to favourability: Canada. Boardroom Sentiment shows that business leaders believe Canada is a good place for businesses to invest and operate. Roughly 8 in 10 (79%) feel Canada offers opportunities for economic growth for businesses with over $10 million in annual revenue, 77% feel that Canada is a great place to invest and 73% to do business.
Turchansky agrees. He believes that Canada offers a great opportunity for US investors looking to diversify their portfolios. “More importantly,” he adds, “what we see across Canada and within Alberta is growth in certain sectors and an optimism that a very shallow recession will occur, which is great for investment.” The ongoing innovation we’re experiencing is also a draw for investment, whether it’s in specific businesses, the province or the country.
It’s an interesting time for Canadian business leaders as they navigate this dynamic macro-environment, balancing optimism with caution. Economic uncertainty and other factors may have softened their outlook, but they are still positive about the market and their own businesses, particularly in Alberta. “Generally speaking, Alberta businesses are in a better position and continue to be improving,” says Turchansky. “They are not just optimistic—they've been able to translate this into growing, healthier businesses moving forward.”
1 Chart 7: Firms' hiring and investment plans continue to trend down. Business Outlook Survey—Third Quarter of 2023, Bank of Canada https://www.bankofcanada.ca/2023/10/business-outlook-survey-third-quarter-of-2023/#chart7
2 Chart 5: The negative impacts of higher rates are wide Spread. Business Outlook Survey—Third Quarter of 2023, Bank of Canada. https://www.bankofcanada.ca/2023/10/business-outlook-survey-third-quarter-of-2023/#chart5