CFIB forecasts recession as business confidence remains 'persistently low'

The Canadian Federation of Independent Business (CFIB) has issued a stark warning that the country’s small‑ and medium‑enterprise sector is heading toward a downturn, with confidence levels plunging to the lowest point in a decade.

The CFIB, Canada’s oldest and largest association of independent businesses, releases an annual “Business Outlook” that gauges the mood of thousands of owners across the country. In its most recent survey, completed by 1,200 Canadian SMEs, the organization reported a sharp drop in the “current situation” score – a key indicator that tracks whether businesses expect sales, profitability and investment to rise or fall in the coming year. The score fell to 48.2, the first time it has dipped below 50 in 14 years, signaling that more businesses are anticipating a decline rather than growth.

A Forecast of Recession

The CFIB’s analysis goes beyond sentiment, offering a forward‑looking projection. Its economists predict that the Canadian economy will slip into a recession in the fourth quarter of 2024, followed by a brief recovery in 2025. The forecast hinges on a number of factors that the survey’s respondents cited as most concerning:

High borrowing costs: Nearly 70 % of surveyed businesses said they are facing “higher borrowing costs or limited access to credit.” That is largely a consequence of the Bank of Canada’s tightening cycle, which has pushed the overnight policy rate to 5 % – its highest level since the early 1990s.
Rising raw‑material prices: Over half of respondents noted that the cost of key inputs such as oil, metals and food has risen sharply, eroding profit margins and dampening demand.
Global supply‑chain disruptions: Persistent bottlenecks in shipping and logistics are pushing up costs and slowing production for many manufacturers and retailers.

“The data tell a clear story,” said CFIB President John McDonald, who highlighted that the organization has never seen a combination of high inflation, elevated interest rates and declining business confidence as pronounced as the current environment. “If the trend continues, we’re likely to see a contraction in GDP and a rise in unemployment.”

Low Confidence, Rising Uncertainty

The survey also measured “confidence” – how optimistic businesses are about the future. Confidence fell to 59.8, the lowest level recorded since the survey’s inception in 2009. While the index’s threshold for a “positive outlook” is 50, the drop signals growing uncertainty.

Small‑business owners noted that “uncertainty about government policy and global trade” was a key driver of low confidence. The ongoing trade tensions between Canada and the United States, along with broader geopolitical instability, have amplified fears that supply chains will become more fragile and that consumer spending may falter.

Economic Context

Canada’s economy, which grew at a modest 1.6 % in the fourth quarter of 2023, has been buffeted by a mix of domestic and global headwinds. The Bank of Canada’s recent policy decisions aim to curb inflation – which has hovered around 4.5 % in the past year – but they also risk cooling economic activity. Meanwhile, the S&P/TSX composite index has slipped by roughly 3 % over the past six months, reflecting investor anxiety about a potential downturn.

The CFIB’s forecast aligns with broader economic projections. The federal government’s 2024 budget has already announced a tightening of fiscal policy, and the Canadian Bankers Association has warned that the banking sector may see a modest uptick in default rates if the downturn materializes.

What the Forecast Means for Canadian Businesses

For the 1.2 million independent businesses that drive 42 % of Canada’s GDP, the forecast is a clarion call to reassess risk and prepare for tighter credit conditions. Many respondents reported that they have already begun cutting back on discretionary spending, delaying expansion projects, and renegotiating supplier contracts. In addition, several highlighted the need for stronger contingency planning, particularly in inventory management and workforce flexibility.

While the CFIB’s outlook may seem bleak, the organization also offered a silver lining: businesses that have already implemented cost‑saving measures and diversified their customer base are likely to weather the storm better than those that remain heavily reliant on a narrow market segment.

Following the Links

CFIB website – The Canadian Federation of Independent Business (cfib.ca) provides detailed reports, including the full “Business Outlook” and data on business sentiment trends.
Bank of Canada – The central bank’s policy statements (bankofcanada.ca) show the current 5 % policy rate and its rationale for further tightening to combat inflation.
S&P/TSX composite – The TSX index (bloomberg.com/quote/TSX:IND) tracks the performance of Canadian equities, offering a snapshot of investor sentiment and corporate earnings expectations.
Canadian economy data – Statistics Canada (statcan.gc.ca) publishes quarterly GDP growth figures and inflation metrics that contextualize the CFIB’s forecast.

Looking Ahead

The CFIB’s warning signals a tipping point for Canada’s small‑business community. Whether the country will slip into a recession, and how quickly it will recover, will depend on a confluence of domestic policy decisions, global economic trends, and the resilience of Canadian firms. For now, the key takeaway is clear: confidence has plummeted, borrowing costs are high, and many businesses are bracing for a challenging year ahead.

As Canada moves forward, stakeholders – from policymakers to investors – must listen to the CFIB’s insights and consider how to bolster the sector’s resilience. The next few months will reveal whether the forecast materializes, but the groundwork is already being laid for a period of uncertainty that will test the ingenuity and adaptability of the country’s independent businesses.

Read the Full The Globe and Mail Article at:
[ https://www.theglobeandmail.com/business/article-cfib-forecasts-recession-business-confidence-low/ ]