Canadian economy heading toward slowdown, but still no recession in sight: CFIB

The Canadian economy is expected to avoid a recession in the first half of 2023, with a growth rate of 2.5 per cent in Q1 and 1.2 per cent in Q2, according to the latest Main Street Quarterly report by the Canadian Federation of Independent Business (CFIB).

The report said the Consumer Price Index (CPI) inflation, both total and excluding food and energy, continued receding in the first quarter of 2023, reaching on a year-over-year basis 5.2 per cent for total CPI and 4.8 per cent for CPI excluding food and energy. The corresponding forecasts for the second quarter are 3.3 per cent and 3.7 per cent.

Simon Gaudreault

“Our economic forecasts suggest inflation is moderating. While inflation is still too high, the quarter-over-quarter annualized rate of core inflation is forecasted at 2.8 per cent for Q2. This is within the Bank of Canada’s one per cent to three per cent target range and therefore supports its decision to pause interest rate hikes,” said Simon Gaudreault, CFIB’s chief economist and vice-president of research. “The GDP and inflation forecasts are encouraging economic news, but rising energy prices in the short term due to the OPEC+ production cut could complicate small business recovery.

“Analysis and forecasts based on small business data support a case for cautious optimism as we’re approaching the busy summer months. However, the costs of doing business remain historically high and the current business environment is unfavourable to pandemic debt repayment. Going forward, stronger revenues and more certainty will be essential to supporting a true business recovery in 2023.”

The CFIB is Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region

The report said the national private sector job vacancy rate remained steady in the first quarter (4.7 per cent), and 658,900 jobs went unfilled.

Andreea Bourgeois

“Although the national vacancy rates have eased, shortages of labour remain a big headache, with 207,800 more job vacancies nationally (+46 per cent) than at Q1 2019, which was at that time already a historical peak in our data. Our members continue telling us how they need to work more hours and have to decrease their service offerings to make up for staffing challenges,” said Andreea Bourgeois, Director of Economics at CFIB.

Other key findings from the report:

• Retail sales contracted by 0.9 per cent in Q1, although they remain higher than a year ago. In the second quarter, sales are expected to grow by 0.6 per cent;
• Private investment is forecasted to contract by -4.7 per cent in Q1 and -1.5 per centin Q2, reflecting a real challenging financial environment and lack of true certainty for businesses at the moment;
• Newfoundland and Labrador and Quebec recorded the highest job vacancy rates of 5.5 per cent and 5.2 per cent, respectively, in the first quarter;
• Businesses in the personal services, construction and hospitality sectors continued to be the most affected by labour shortages with vacancy rates of 7.5 per cent, 6.3 per cent and 6.1 per cent, respectively;
• Average wage increase plans peaked at 3.4 per cent in Q2 2022 and, after an initial drop, have been seesawing since Q4 2022. They sat at 3.1 per cent in Q1 2023 amid a tight labour market and high inflation;
• Small businesses struggling with labour shortages are more inclined to raise wages. In fact, businesses without shortages plan to increase wages by 2.4 per cent, while those experiencing shortages of both skilled and unskilled/semi-skilled workers are expecting to increase wages by 3.8 per cent;
• Some sectors, such as hospitality and transportation, had more businesses increasing wages by six per cent or more, which greatly influence their average wage increase plans, reaching 4.1 per cent and 3.6 per cent respectively.

Read the full Main Street Quarterly here.

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)