Financial market turbulence caused business confidence in Canada to plunge significantly in the third quarter, according to the Conference Board of Canada.

The Conference Board’s Index of Business Confidence dropped 13.5 points, for a fifth consecutive quarterly decline.

It has declined nearly 29 points since the second quarter of 2007, and now stands at 78 points. It has only fallen below this level twice in the past — in 2001 and in the early 1990s.

“The ongoing financial and equity market mayhem is having a significant impact on business leader’s views about near-term economic prospects,” wrote Pedro Antunes, director of the Conference Board’s national and provincial forecast, in the survey results for the business confidence index.

The survey of CFOs, which was conducted during the first three weeks of October, showed a marked increase in the level of concern about the economy and future financial performance from the second quarter. It found that 70% of respondents believed the economy would be in worse shape in six months, and more than a quarter said they believe their firm’s financial performance would worsen in the next six months. More than half of respondents said they expect their firm’s finances to remain unchanged.

More than 30% of those polled said they expect their firm’s profitability to deteriorate in the next six months, while a quarter said they believe it will improve.

The lack of optimism is likely to continue driving down investment levels among firms, according to the Conference Board.

The survey showed that just 25.8% of business leaders believe it is a good time to invest in their plant or purchase new equipment. Among the factors deterring investment, 43.4% said weak market demand was the most significant. Another 27.7% of respondents said difficulty obtaining corporate financing was forcing them to scale back investments.

While concerns over rising labour costs and difficulties finding qualified staff have weakened, the Conference Board noted that these are still issues hampering capital investment.

Capacity constraints have eased from their peak levels in 2006 and 2007. In the autumn survey, 45.7% of respondents said their firm was are operating at, above, or close to capacity, while 22.2% said their firm was operating substantially below capacity—up drastically from 12.7% in the fourth quarter of 2007.

One bright spot in the survey was inflationary expectations, which have come down substantially. The percentage of respondents who believe prices in the next six months will advance at an annual rate of 2% or less grew to 60.5%, from 40.4% in the second quarter.

IE