Inflation and labour concerns ease, but cost-related pressures dominate Canadian business outlook
Statistics Canada reported that businesses expect a variety of obstacles over the next three months, primarily related to costs and labour.
However, expectations surrounding these challenges have eased in the fourth quarter, with nearly three-quarters of businesses remaining optimistic about their outlook over the next 12 months.
Real gross domestic product increased by 1.3 percent year-over-year in August. Consumer inflation, which has stayed below 3 percent in 2024, rose to 2.0 percent year-over-year in October.
Employment added 15,000 jobs in October, representing a 0.1 percent growth, while the unemployment rate remained at 6.5 percent.
In this economic context, Statistics Canada conducted the Canadian Survey on Business Conditions from October to early November to gather insights on the operating environment of businesses and their expectations for the future.
Nearly two-thirds of businesses, at 65.7 percent, expect cost-related challenges in the next three months. These obstacles include inflation, input costs, interest rates, debt expenses, insurance, real estate, and transportation costs.
Rising raw material prices were evident in September, with the Raw Materials Price Index showing a 3.8 percent monthly increase but a 2.8 percent year-over-year decline.
Average hourly wages for employees increased by 4.9 percent in October, building on a 4.6 percent increase in September.
Inflation, cited by 44.9 percent of businesses, is the most anticipated obstacle, although it is the first time since the third quarter of 2022 that less than half of businesses have reported inflation as a challenge.
Retail trade, manufacturing, and accommodation and food services, with 60.0 percent, 53.6 percent, and 52.0 percent of businesses, respectively, were most likely to identify inflation as a barrier.
Additionally, 10.7 percent of businesses ranked inflation as their most significant obstacle.
Input costs emerged as the second most reported obstacle, anticipated by 37.6 percent of businesses.
This challenge was most pronounced in agriculture, forestry, fishing, and hunting, where 57.4 percent of businesses expressed concerns, followed by 55.3 percent in accommodation and food services and 47.7 percent in manufacturing.
Interest rates also represent a challenge for some businesses. The Bank of Canada reduced its overnight lending rate to 3.75 percent in October 2024, marking its fourth consecutive decrease since June 2024.
Despite this, 28.5 percent of businesses indicated that interest rates and debt costs remain a concern for the next three months. This figure reflects a decline from 34.1 percent in the third quarter and 40.6 percent in the second quarter.
Over the past 12 months, 48.1 percent of businesses reported medium or high impacts from interest rates, with 33.3 percent specifically highlighting the cost of existing debt as a concern.
Labour-related challenges also persist, with 37.3 percent of businesses expecting difficulties in recruiting or retaining skilled employees, as well as addressing labour shortages.
Recruiting skilled workers was cited by 28.3 percent of businesses, while retaining employees and labour shortages were noted by 19.3 percent and 19.1 percent, respectively.
Among these challenges, 9.8 percent of businesses identified recruitment as the most pressing concern.
Despite these obstacles, businesses expressed optimism for the future. In the fourth quarter, 71.6 percent of businesses were either very or optimistic about their outlook for the next 12 months.
However, 16.6 percent of businesses expect sales to grow over the next three months, slightly down from 17.5 percent in the previous quarter.
Retail trade, manufacturing, and information and cultural industries led these expectations, with 25.8 percent, 24.1 percent, and 22.7 percent of businesses in these sectors anticipating sales growth.
At the same time, 19.3 percent of businesses expect to raise prices for their goods and services in the next three months, with accommodation and food services leading this group at 34.5 percent. More than two-fifths, or 42.6 percent, of businesses, plan to increase wages in the next 12 months.
Among these, 17.0 percent anticipate faster wage increases than in the past 12 months, while 57.6 percent expect a similar rate of growth, and 15.5 percent foresee slower increases.
Inflation, cited by 54.4 percent, remains the most influential factor in wage decisions, followed by talent retention at 49.3 percent.
Other considerations include the expected inflation rate, noted by 29.9 percent, and the need to attract labour, cited by 26.0 percent.
Bilingualism remains a consideration for some businesses. In the fourth quarter, 15.6 percent of Canadian businesses in required at least one bilingual employee proficient in English and French, while 5.2 percent required all employees to be bilingual.
Quebec and New Brunswick reported higher rates, with 46.2 percent and 28.9 percent of businesses, respectively, requiring bilingual employees.
