Business Confidence Drops Dramatically

Persistently high inflation and a weakening economy raises ‘stagflation’ risk.

Business confidence in Quarter 3 of 2022 has dropped the most since early 2020, when the pandemic and lockdowns led to a massive global economic downturn, according to the latest Bank of Canada Business Outlook Survey.

Business confidence fell from 4.87, to 1.69.

Confidence had risen following the removal of lockdowns, as the economy partially rebounded from an artificially low-level.

However, that ‘rebound’ was largely fueled by massive government borrowing and spending, which has now led to persistently high inflation.

This is has led to inflation expectations remaining elevated above the Bank of Canada target for the next three years.

Companies also expect sales to decline:

“Businesses anticipate that their sales will grow at a slower pace over the next 12 months (Chart 8, blue bars). Furthermore, a greater number of firms than in the last survey reported that their future sales indicators (e.g., order books, sales inquiries) have worsened compared with a year ago (Chart 8, red line). Businesses with sales directly or indirectly linked to housing activity and household consumption anticipate weaker sales growth due to interest rate increases.”

Risk of ‘stagflation’

If inflation remains elevated even as the economy slows, Canada will experience stagflation (a combination of economic stagnation and inflation).

Arguably, this is already taking place.

Many Canadians already feel as if the nation is in a recession, as receding purchasing power means people are getting poorer in real terms, even as there is ‘more money’ in the system.

Canadians have been subjected to years of policies that are inherently anti-growth, as the federal government has sought to deliberately make life more expensive in order to cut down on the carbon footprint of Canadians.

This can done one of two ways: Through increased efficiency by way of technological innovation, or through making people worse off so they consume less.

The Liberal government has chosen the latter, and as a result Canadians are paying the price, even as countries like China continue to build tons of coal power plants and completely undo any tiny little change we make in the global emissions picture.

With those policies remaining in place – and the carbon tax set to keep increasing – business confidence will continue to struggle going forward.

Spencer Fernando


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