Ontario business confidence drops to new low as outlook darkens

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The business owners that power Canada’s biggest economic engine have never felt less confident about their province’s economic outlook, more evidence that a year of high inflation and rising interest rates could lead companies to hunker down.

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Only 16 per cent of the Ontario Chamber of Commerce’s members said they were confident about their province’s economic prospects this, down from 29 per cent a year earlier, the lobby group said in its annual economic outlook, published Feb. 7.

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The chamber surveyed about 1,900 members from mid-October to the end of the November, a period when discussion of a recession was rampant. The Bank of Canada had just released a new forecast the predicted economic growth was on track to stall, yet policymakers said they had no choice to keep raising interest rates to crush inflation.

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Still, there’s something in the report that could bolster arguments that the downturn could be shallow. Despite their lack of confidence in the broader economy, 53 per cent of the chamber’s members said they were more optimistic about their own ability to make gains this year, suggesting resiliency.

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“The external-internal confidence gap is not new, and likely reflects the perception that businesses have greater control over their own success than that of the broader economy, which depends more on government policy direction and exogenous economic conditions,” the report said.

The biggest concern is labour shortages, as 68 per cent of respondents said their sector faces the problem, up from 62 per cent a year earlier. More than half of the companies surveyed said they were struggling to fill open positions.

“These talent gaps are driven by the confluence of factors – including an aging population, immigration backlogs, and increased demand for skilled trades labour to support housing and other infrastructure development projects,” the report said. “In the accommodation and food services sectors, many workers have retrained during the pandemic and entered new industries. In the health care sector, shortages are both a cause and a consequence of burnout within an overstrained system.”

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Rising costs are also a concern, as the pace of inflation hit a peak of 8.1 per cent in June 2022, the fastest since the early 1980s.

Cost pressures have since come off, but the latest reading of 6.3 per cent year-over-year in December is still well outside the Bank of Canada’s target of two per cent. The central bank has raised its benchmark rate to 4.5 per cent from 0.25 per cent this time a year ago, an aggressive bid to crimp what it sees as “excess demand.”

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The chamber’s outlook said interest rates are expected to continue to weigh on the province’s economic growth, which the group forecasts will slow to 0.4 per cent this year.

According to the chamber’s report, businesses want to see the provincial government bring in more immigrants to address labour concerns, invest in high-demand training programs to close the skills gap, fast-track foreign accreditation and job credential recognition, break down interprovincial barriers for labour mobility and to come up with a co-ordinated health and human resources strategy to promote employee well-being.

The Ontario government is expected to table its next budget sometime in the spring.

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