Canadian Business Optimism Rebounds in Second Quarter

July 26, 2012 /

Canadian business optimism has rebounded from last quarter according to the latest research from the Grant Thornton International Business Report (IBR).

A balance of 70% of the 600 Canadian business leaders surveyed said they were feeling optimistic, up 19 points from the first quarter of this year. Optimism was highest in Western Canada at 73%, with Ontario at 62%, Quebec at 53% and Atlantic Canada at 48%.

Canada stood out in the IBR as having the highest optimism rate amongst developed economies around the world. By comparison, the United States was significantly lower at 50%, and the global average sits at just 23%. Key Canadian sectors like construction and real estate (65%), retail (61%) and manufacturing (46%) sat below the national average.

But while global optimism remains low, there is a glimmer of hope on the horizon as IBR results show that plans for business investment around the world – and especially in emerging markets – has nudged up slightly over the past 18 months. The proportion of businesses looking to increase investment in new buildings has risen from 15% to 21%. Anticipated investment in plant and machinery went from 35% to 38%.

In Canada, by contrast, 25% plan to invest in new buildings, 40% in plant and machinery. Anticipated investment in research and development sits at just 15%, well below the global average of 25%. In BRIC countries, 45% of businesses plan to increase investment in research and development over the next year, compared to just 18% of businesses in the G7.

Canadian businesses continue to cite the lack of availability of a skilled workforce (35%) as a constraint to growth – something that has remained consistent over the past 18 months. Of those, 43% said the shortage of skilled labour was forcing them to make do with less, 36% say it was increasing their expenses, and 35% say that they are needing to recruit from another region in Canada. Globally, the top constraint to growth this past quarter was reduced demand/shortage of orders at 33%, while this concern ranked comparatively low (10%) in Canada.

A balance of 36% of Canadian businesses said that their employee count is expected to go up (up 2% from last quarter), and 88% are expecting to offer a salary increase (with 13% offering an increase above inflation).

In addition to the global questionnaire, respondents from Canada were asked whether Canadian businesses should focus more on a global approach with less reliance on the US. An overwhelming majority – 85% – said yes. When asked which global markets presented the best opportunity for growth, respondents listed Asia Pacific (65%) as the top opportunity for growth, with the United States (41%) and Latin America (40%) rounding out the top three. In dealing with the US, however, an overwhelming majority (62%) of Canadian businesses said they were concerned about the impact of the high Canadian dollar.

“It’s clear that global economic uncertainty continues to weigh on short-term business growth prospects around the globe, but it’s encouraging to see that Canada’s optimism is once again bouncing back. Our survey of 600 Canadian business leaders also corroborates the rising optimism seen in the Bank of Canada’s Spring 2012 Business Outlook survey,” said Bill Brushett, Partner, Grant Thornton LLP.

“However, we may want to take a lesson from our global survey results, which show that emerging market counterparts are investing in their future and putting increasing resource behind research and innovation and equipment that will increase their productivity. Even in tough times, businesses need to be forward thinking, keep pace with their competitors and continue to invest in the future of their companies.”


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