Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
The latest Business Barometer from the Canadian Federation of Independent Business (CFIB) shows that the Canadian economy is in the midst of a perfect storm, and growth is coming to a halt due to the uncertainty surrounding tariffs. 1) Business confidence has dropped significantly to its lowest level on record; 2) firms expect to rapidly and more fully any increase in costs, meaning that inflationary pressures are likely to rise rapidly; 3) hiring intentions show that some layoffs are likely in the coming months.
The drop in economic activity and hiring, while inflationary pressures are likely to flare up, complicate significantly the job of the Bank of Canada. As we have seen in the CPI report, inflation is already at the upper end of the inflation target, and recent dynamics is consistent with inflation above 3% even for core measures. The BoC will need to balance the conflicting inflationary pressures. However, it is essential to note that inflation is its primary mandate. As Governor Macklem said “monetary policy cannot offset the impacts of a trade war”.
The release of the monthly Canadian Federation of Independent Businesses (CFIB) Business Barometer reveals the extent of the impact of uncertainty stemming from US tariffs. The long-term business expectations index fell to its lowest level on record at 25.0. The previous record low was seen at the start of the pandemic in March 2020 and reached 30.8. As a comparison, during the financial crisis in 2008-09, it bottomed at 39.4. The drop in confidence is mainly the result of 59% of respondents saying that their firm’s performance will be either “much weaker” or “somewhat weaker” over the next 12 months.
Other parts of the survey are also concerning. Firms surveyed expect to increase their prices by 3.7% on average over the next year, the highest level since May 2023. Price expectations were at 2.3% increase over the next year in September. This suggests that inflationary pressures are likely to build up rapidly, as businesses are increasingly willing to pass higher costs to customers.
Hiring intentions are also declining. Net hiring intentions, the balance between firms saying they will increase employment level and those that say they will decrease over the next 3 months dropped to -8.6%. This is the lowest level since 2021.
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Independent Opinion
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