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Canada Economic Prospects Hazy

The upcoming US election and the protectionist trade winds associated with it are likely factors contributing to doubt or hesitation among business leaders in Canada
Statistics Canada reported that the country piled up a trade deficit of $4.1 billion in September, the 25th shortfall in a row.Statistics Canada reported that the country piled up a trade deficit of $4.1 billion in September, the 25th shortfall in a row.

Plenty of uncertainty about the national economy lingers among professional accountants in leadership positions, according to a new survey conducted for Chartered Professional Accountants of Canada.

The latest CPA Canada Business Monitor (Q3 2016) finds that half of those surveyed are neutral about the prospects for the Canadian economy over the next 12 months, a result similar to the previous quarter. In addition, pessimism continues to run ahead of optimism. More than a quarter (29%) of the business leaders are pessimistic about what lies ahead for the Canadian economy while 21% are optimistic. Both those findings are similar to Q2 2016.

For the eighth consecutive quarter, the price of oil is cited by the survey respondents as the number one challenge to growth of the Canadian economy. It was followed by the state of the US economy.

“The upcoming US election and the protectionist trade winds associated with it are likely factors contributing to doubt or hesitation here in Canada,” says Joy Thomas, president and CEO of CPA Canada. “Not only is the future unclear regarding trade policies with the US but there are other challenges including Canada’s transition to a low-carbon economy and possible ramifications from the Brexit vote.”

 Hesitation Persists

Business optimism sits at 47%, consistent with the previous quarter. These findings reveal how the survey respondents view the prospects for their own companies over the next 12 months.

Focusing on revenues, 61% of the respondents are projecting growth over the next 12 months, virtually unchanged from Q2 2016.  For profits, 57% of those surveyed anticipate an increase, consistent with the second quarter.

Turning to employee numbers, 36% of those surveyed predict growth at their company, almost identical to the previous quarter. Nearly 39% of the respondents anticipate no change while 23% expect a drop.

 Investing in Innovation

The business leaders surveyed clearly recognize the importance of innovation in terms of remaining competitive.

An overwhelming majority of those surveyed (86%) agree that innovation is important to the success of their company. Among the survey participants, the top priorities for significant innovation investment in the next 12 months are technology/software (with 38%) indicating significant investment is planned, process improvements (36%) and products/services (30%).

“In a fast-changing, competitive world, innovation investment plays a key role in creating high-quality jobs and growing our economy,” explains Thomas. “While there is clear recognition of the value of innovation, there is still room to grow investment.”

According to the survey, six-in-ten (61%) of the business leaders say investing in innovation will be a priority over the next 12 months. Thomas is encouraged by the findings but adds “an escalation in the number of companies making innovation investment a priority would help to strengthen the prospects for the Canadian economy.”

 Trade Deficit

Canada’s trade performance leaves many analysts scratching their heads and—like central bank governor Stephen Poloz—wondering when the so-called “Great Rotation” from a consumer-driven economy to one led by exports, a sector that was supposed to benefit from the weak domestic currency.

Statistics Canada reported Friday that the country piled up a trade deficit of $4.1 billion in September, the 25th shortfall in a row and dwarfing the $1.7-billion number that many forecasters had expected.

Imports rose 4.7% during the month, while exports were limited to a meager 0.1% gain, the data agency said. Shipments to the United States—Canada’s largest customer—were down 0.6% in September, at the same time that imports fell 1.1%.

 “Looking past the month-to-month choppiness, Canadian exports showed some signs of strengthening in the third quarter after a disappointing first half of the year,” said Fotios Raptis, at TD Economics.

“Nevertheless, Canadian export performance is likely to continue to disappoint despite the past depreciation in the Canadian dollar.”

The economy as a whole is also troubling for many business leaders, specifically concern over the lingering impact of the still-low oil prices—along with uncertainty about US growth and Tuesday’s presidential election.

 

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