Businesses expect inflation and rising input costs to remain key challenges in the coming months
Statistics Canada released findings on business conditions for the third quarter of 2024, highlighting that cost-related challenges continue to be a major concern for businesses.
However, there has been a gradual improvement in business outlook since the fourth quarter of 2023, despite the ongoing obstacles.
Real GDP increased by 1.1 percent year-over-year in May 2024, while consumer inflation remained below 3 percent, reaching 2.7 percent in June. Employment figures showed minimal change in July, with a slight job loss of 2,800 and an unchanged unemployment rate of 6.4 percent.
Against this backdrop, Statistics Canada conducted the Canadian Survey on Business Conditions from July to early August 2024, gathering insights into the business environment and future expectations.
Businesses continue to face challenges related to inflation, interest rates, and debt costs. Although the pressures from cost- and labour-related obstacles have eased in the third quarter of 2024, a positive business outlook has emerged, extending the trend seen since late 2023.
Cost-related challenges are the primary concern for businesses. The Raw Materials Price Index, which measures the prices of raw materials purchased by Canadian manufacturers, fell 1.4 percent in June 2024, though it rose 7.5 percent year-over-year.
Additionally, average hourly wages increased by 5.2 percent in July compared to the previous year, following a 5.4 percent increase in June.
In this context, 67.6 percent of businesses anticipate facing cost-related obstacles over the next three months, a significantly higher proportion than those expecting labour-related obstacles at 39.5 percent.
Inflation is expected to be the top obstacle for businesses, with 50.2 percent foreseeing it as a challenge over the next three months.
This trend has persisted since the first quarter of 2021, particularly affecting sectors like accommodation and food services (66.9 percent), retail trade (66.6 percent), and agriculture, forestry, fishing, and hunting (57.6 percent).
The rising cost of inputs is the second most anticipated challenge, cited by 41.8 percent of businesses, especially in accommodation and food services (65.9 percent), agriculture, forestry, fishing, and hunting (64.9 percent), and retail trade (52.9 percent).
High interest rates and debt costs are also a concern for 34.1 percent of businesses, with the agriculture, forestry, fishing, and hunting sector leading at 49.2 percent.
When identifying the most challenging expected obstacle, 12.5 percent of businesses pointed to rising inflation, 10.1 percent to the rising cost of inputs, and 9.0 percent to recruiting skilled employees. These obstacles and their rankings remain consistent with those anticipated in the first and second quarters of 2024.
Despite these challenges, businesses maintain a trend of optimism about the future. Over three-quarters (76.7 percent) are optimistic about their outlook over the next 12 months, up from 72.1 percent in the second quarter of 2024.
However, fewer businesses expect an increase in sales of goods and services over the next three months, with 17.5 percent forecasting growth, down from 20.7 percent in the second quarter.
Meanwhile, 19.6 percent of businesses plan to raise the prices of their goods and services in the same period.
Looking ahead, 34.7 percent of businesses anticipate revenue growth of 1 to 5 percent per year over the next three years, with an additional 11.7 percent expecting growth of 6 to 10 percent.
In contrast, 7.2 percent foresee a decline in revenue, while 10.6 percent expect no growth at all, with nearly half attributing this to an economic environment not conducive to significant growth.
Confidence in debt repayment remains strong among businesses, with 57.3 percent expressing high confidence in their ability to make payments on time.
Meanwhile, 22.2 percent of businesses reported being unable to take on more debt, citing unfavourable interest rates, cash flow issues, and uncertainty in future sales as key reasons.
Cybersecurity remains a low priority for most businesses, with 54.4 percent having no plans to take additional measures over the next 12 months, primarily due to the belief that they do not need them.
However, 22.2 percent of businesses plan to enhance their cybersecurity actions, especially in finance and insurance, wholesale trade, and professional, scientific, and technical services.
Environmental practices are in place for 66.7 percent of businesses, with efforts focused on waste reduction, energy consumption, and promoting environmentally friendly practices among employees.
This is consistent with levels reported in the same quarter of 2023. Additionally, 32.4 percent of businesses plan to implement new environmental practices over the next 12 months.
