Data shared by the Conference Board of Canada on Wednesday finds that business confidence in the country is hitting new lows as COVID-19 continues its strangulation of the global economy. Even though some countries in Europe, and some states in the U.S., are gradually reopening after shuttering wide swaths of their economies for over a month, the news has failed to instil in Canadian business owners a sense of optimism for the days ahead.
Based on data collected between March 30 and April 16, the Conference Board’s Index of Business Confidence (IBC) dropped to its lowest level since the survey was first launched in 2002. During the survey period, the Index fell almost by half, from 86.0 to 43.8, indicating that “[v]ery few business leaders are expecting the economy, or their firms’ fortunes, to improve in the next six months.”
Almost two-thirds – 63 percent – of survey respondents expect economic conditions to be worse in six months. Only a quarter believe economic conditions will rebound. It’s a marked deterioration from the previous quarter, when the pessimism-optimism ratio was a far more balanced 25 to 20. Only 18 percent of respondents see their firms improving their positions in the next six months, while 68 percent are expecting a further decline.
Robyn Gibbard, the Conference Board senior economist who wrote the report containing the survey results, told MBN that the unprecedented effect of COVID-19 on the economy should be accompanied with a similarly negative drop in business confidence.
“If anything, I would have been surprised if [the results were] more positive,” he said.
But Gibbard was taken aback by just how many survey respondents view the country’s economic future negatively. He says that even if business owners are projecting the plight their own companies are facing onto the greater economy, making the coming days seem even darker, their concerns are legitimate indicators of what’s happening to businesses across the country.
“It’s natural to worry about what the shape of the recovery is going to look like and how quickly we can get things back to normal if we have this trail of dead businesses left in our wake,” he says. “If a lot of these businesses are worried about going under, I think that is a valid concern.”
One of the most distressing figures coming out of the survey concerns respondents’ views on future investment. Only 18 percent said now is a good time to invest, a sentiment echoed by the low number, 24 percent, of firms planning on increasing spending on machinery and equipment in the next six months.
Survey data are often subjected to the same question: Is this a reliable window into the future or a limited snapshot of collective emotions. According to BMO chief economist Douglas Porter, the IBC lined up well with two earlier drops in Canadian business spending, the tech-driven wreck in the early 2000s and the 2009 recession, and the current dip is even deeper.
Does that mean capital expenditures will drop further this time?
“That’s not obvious,” Porter says, “and this is where we get into the fact that some of this deep drop in sentiment could reflect A, the shock of how quickly things deteriorated this time, and B, the unknown quality of what we are dealing with. However, I do think it’s safe to say that the deep drop will indeed presage a notable drop in business investment in the next few quarters.”
Unfortunately for market-watchers, the Conference Board Index is generally accepted as one of the country’s most accurate measures of future capital spending.
“We have a real mix of businesses of different sizes from across the country. That allows us to get a good picture of business sentiment,” Gibbard says, adding that business sentiment does “a pretty good job” of predicting investment in the following quarter.
The survey contained one data point that might provide a slight glimmer of hope for anyone who reads the Conference Board report. Almost three-quarters of respondents blame weak demand for the downgrading of their investment plans. Once Canadians start going back to work, that demand is sure to rebound.