CPA Canada says economic optimism among business leaders is starting to decline, reversing a trend of increasing optimism earlier in the year.
The association said the results of its Chartered Professional Accountants of Canada Business Monitor Q3 survey suggest senior executives in Canada believe the economy is softening.
Roughly one in five (19%) respondents said they were optimistic about the economy over the next 12 months, down from 28% in the second quarter of 2023. Just over one quarter (26%) pointed to increases in interest rates as the biggest challenge to the growth of the Canadian economy, followed by the rise in inflation (14%).
The Bank of Canada also reported weakening business sentiment in its quarterly business outlook survey released last week.
“The economy is no longer seen as resilient, as higher interest rates make their way through the economy and are truly felt across Canada,” said CPA Canada’s chief economist David-Alexandre Brassard. “The historic surge in population has been behind most of the recent growth in spending and economic activities. Now the underlying economic weaknesses are peeking through.”
Business optimism is also softening somewhat, with 48% of CPA respondents optimistic about the prospects for their own businesses in the next year, down from 56% last quarter.
However, nearly two-thirds of respondents (62%) believe their companies will increase their revenue over the next year (compared to 57% in Q2); 49% said they believe profits will increase over the next year (identical to Q2); and 44% anticipated a climb in employee numbers (compared to 42% in Q2).
A total of 80% of respondents said inflation is hurting their companies, with almost half (49%) of all respondents believing inflation will continue to hurt their companies for at least another year.
Almost three-quarters of respondents (72%) said interest rates are having a negative impact on their companies, and 86% said rates are having a negative impact on the Canadian economy.
“Higher inflation is sticking around for longer than we would like. Many now see interest rates remaining higher for longer than was initially expected,” Brassard said. “This, in turn, increases the chances of a recession. Further rate hikes would be hazardous, but they have not been excluded by the Bank of Canada.”
On Wednesday, the Bank of Canada held its overnight rate at 5%.
The CPA Canada Business Monitor is issued quarterly, based on a survey of professional accountants in leadership positions in private and public companies. For the Q3 2023 study, emailed surveys were completed by 304 of 6,514 senior executives.