Canadian business profit and investment plunge

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Just as the going is about to get tough(er), data signals all is not well in Corporate Canada.

Results for the third quarter revealed that profits and investment plunged for many Canadian businesses.

For non-financial corporations, profits fell to their lowest levels since the pandemic, dropping more than 38 per cent, said Florence Jean-Jacobs, Desjardins’ principal economist.

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Telecoms and mining and quarrying posted the biggest declines, with both sectors struggling with higher costs amid challenging market conditions, she said.

Net income also declined for auto makers as they retooled assembly plants in the quarter, while higher earnings in the oil and gas sector helped stem the decline.

“Corporate results in Q3 confirmed that the market environment remains challenging and uncertain for many businesses,” wrote Jean-Jacobs in a report.

Investment in machinery and equipment by non-residential businesses also dropped 11.3 per cent, wiping out most of the gains from the quarter before.

“While interest rates and cost-related obstacles are easing, Canadian companies are not quite ready to press on the investment accelerator,” said Jean-Jacobs.

“Higher expenses … and an uncertain trade environment appear to be constraining capital spending and expansion plans.”

Uncertainty over the trade environment spiked last week when President-elect Trump promised 25 per cent tariffs on all goods from Canada and Mexico, starting the first day he took office.

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While most think tariffs of this magnitude are just a negotiating tactic, with $3.6 billion in goods crossing the U.S.-Canada border daily, the impact would be huge if the threat became reality.

A 10 per cent tariff would shave 2.4 percentage points off Canadian GDP over two years and put about 500,000 jobs at risk, said Andreas Schotter, a professor at the Ivey Business School in London, Ont.

A tariff of 25 per cent would triple those job losses and impose an even bigger hit on economic growth.

A survey by Statistics Canada in early November found that almost three-quarters of businesses were optimistic about the future, “but with President-elect Trump’s tariff threat, the outlook could worsen, especially for businesses that depend on exports to the U.S.,” said Jean-Jacobs.

Now is not the time for Canadian businesses to be cautious, she said.

“With an aging workforce, planned reduction in population growth that could temper Canada’s labour supply, and a tough competitive environment, Canadian firms need to accelerate their digital transformation and invest in productivity-enhancing processes and equipment.”

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The economy grew 1 per cent in the third quarter, but if it wasn’t for the population boom it would have been in contraction, said Charles St-Arnaud. The chief economist for Alberta Central calculates that if population growth was the same as before the pandemic, the economy would have shrunk by 0.2 per cent quarter over quarter.

Gross domestic product per capita fell for the sixth quarter in a row in the three months to September. “Such a decline has never been seen outside a recession,” said economists with National Bank of Canada.

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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