Small and medium-sized enterprises (SMEs) in Atlantic Canada have a positive outlook when it comes to investment intentions in 2020, even with a slow-growing economy, according to a report by the Business Development Bank of Canada (BDC).
BDC’s annual investment outlook survey includes 1,000 entrepreneurs in Canada.
“The balance of opinion is +2, that means that investment intention is actually increasing slightly in the Atlantic provinces,” said BDC’s VP of research and chief economist Pierre Cléroux, referring to the percentage of businesses expecting higher spending versus those expecting lower spending.
The outlook from Atlantic Canadian businesses is showing weakness from last year, but it’s in line with that of the country overall, for which the balance of opinion is +3.
“It doesn’t sound like a lot…but it’s plus three compared to last year, which was already a year of high investment. This is actually positive. It means that Canadian businesses in general believe they’re going to perform better this year a little bit more,” Cléroux said in an interview.
While businesses in the Prairies and British Columbia have lower investment intention, and Quebec and Ontario businesses are more optimistic, overall, there’s a shroud of uncertainty that worries entrepreneurs.
Generally in Canada, confidence in the global and U.S. economy is eroding. But businesses are more confident about the Canadian economy and “much more confident” about their own performance.
“There’s an umbrella of uncertainty around the world economy, but despite that they’re confident about the performance of their own business and they continue to invest because of that,” Cléroux said.
“When we asked more questions, we realized that half of Canadian businesses are not able to respond to the demand,” he added, explaining that this means they see strong demand for their products and services.
Cléroux says even with slower global economic growth, the signing of a new trade deal between the U.S., Mexico and Canada last year reinstated favourable conditions for Canadian products and services.
Thus, the increase in planned investments for 2020 was almost exclusively attributable to exporters, including in Atlantic Canada, where the largest export market is the U.S., where political uncertainty clouds a strong economy. Investment intentions are slower for businesses selling to the domestic market.
“It’s because [exporters] are still facing strong demand,” Cléroux said. “There’s a lot of uncertainty around the U.S. economy for political reasons, also for trade issues. But the U.S. economy has been strong. So the demand for Canadian products is still very good.”
On the other hand, Atlantic Canadian businesses feel less optimistic about the Canadian economy and their own region’s economy. Except for PEI, growth has been more slower – at around 1 per cent – in the other three Atlantic provinces, Cléroux says.
Atlantic Canadian businesses cite a lack of funds and poor economic conditions as the main barriers to investment.
“It varies from one province to another, but in general the economy has been slow. Still positive, it’s not a recession,” he said. “I would call it modest growth.”
Where governments make a lot of cuts, Cléroux said that would slow down economies in general.
“In any economy, when the government is reducing spending, this is slowing it down because it takes away money from the economy,” he said. “It’s not contributing to growth.”
Investment patterns of Canadian businesses have also changed over the years as they seek to remain competitive. The trend is moving towards more investment in intangible assets like software, and less towards buying tangible assets like machinery and other hardware.
Faced with a shortage of skilled or experienced workers, and with more new technologies being used, companies are also investing more time and money in training staff.
“The level of spending in training is really increasing. It has been the case for a few years, but this year we see this trend accelerated,” Cléroux said.
At the same time though, the labour challenge is forcing companies to limit their growth and investment.
“It’s getting so difficult to recruit people that some companies will slow down their growth,” Cléroux said.