Morning Market Brief: Wednesday, May 31, 2023

Canadian businesses seeing a brighter outlook?

In this second quarter of 2023, pressures are easing for Canadian businesses. Still, according to Statistics Canada’s (StatsCan) Canadian Survey on Business Conditions, the outlook for the next three months might include several obstacles that could weigh on business activity. The potential obstacles aren’t surprising, given the level of uncertainty in Canada’s economic outlook and the persistence of tighter financial conditions, geopolitical tensions and financial market volatility.?

• The StatsCan survey found that almost 50% of businesses believe their operating costs will increase over the next three months, with about 30% believing profits will drop. This could limit companies’ ability to reinvest in their businesses, particularly in labour and other capital expenditures.
• One of the largest obstacles facing Canadian businesses is high inflation. While Canada’s rate of inflation has eased in recent months, it remains at relatively elevated levels. About 56% of businesses cited inflation as the greatest obstacle over the next three months. Second on the list are rising costs of inputs, including labour, capital and raw materials.
• Conversely, fewer businesses expect supply chain challenges over the next three months. Amid the pandemic, supply chain disruptions posed massive challenges for businesses and contributed to surging prices for many goods and services.
• Many believe the outlook is relatively bright. Just under 75% of businesses are very or somewhat optimistic about their outlook, higher than the previous quarter. Optimism was particularly high in the finance and insurance industry.

Business conditions appear to be less than ideal, but the perception of the future is beginning to appear brighter. With a stronger outlook, businesses might be more inclined to invest in capital and labour, which are vital for a healthy Canadian economy. It will be important for business owners to budget appropriately to get through potentially tough environments and to set the business up to excel in better times.

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