Business confidence in the economy took a heavy hit in the second quarter of 2003, according to a survey of small and medium-sized firms released Thursday by the Canadian Federation of Independent Business.

Soaring insurance costs, SARS and Mad Cow disease (BSE) have taken a toll reports the CFIB.

It says CFIB Quarterly Business Barometer decreased to 104.8 in June from 108.8 this past March.

Across all industry sectors, the index fell substantially between March and June 2003. Agriculture, construction, retail and hospitality sectors are feeling pinched the most, while business, social and financial services are the least affected by weakness.

Despite this, a still strong 45% of small business owners said they expect to be performing much stronger or somewhat stronger 12 months from now, while almost a fifth, 18%, expect to be worse off. The remaining 37% see things remaining much the same.

Among the major shocks to the business climate, insurance generated by far the most concern for small and medium-sized businesses. About 34% of business owners say they are being significantly harmed by either the high cost of insurance, or the elimination of coverage altogether by insurance companies, while another 41% say they are slightly harmed by the rapidly rising costs of insurance.

“The long-running issue of insurance is causing the most harm to small firms and having the greatest business impact,” said CFIB chief economist, Ted Mallett. “Keep in mind that in addition to auto insurance premiums, there is significant damage being done on other types of business property and casualty insurance, including property, liability and business interruption,” he said.

Mallett said strained relations in the aftermath of the Iraq conflict continue to impact the economy; many business owners say their sales to U.S. customers still suffer.

Mad cow disease and SARS have also bruised business confidence, particularly on a regional basis, Mallet added.

“Not surprisingly, the combined assault of these external factors has been hard on business confidence, particularly in the short-term,” said Mallett.

He said short-term expectations have deteriorated, with 37% of business owners saying their firm’s performance will be much weaker or somewhat weaker in the next three to 12 months.

The survey was conducted between June 2 and June 13 of this year, and drew 3,070 respondents.