World Economy

Canada SMEs Confidence Wanes

Canada SMEs Confidence WanesCanada SMEs Confidence Wanes

Nine years into the economic cycle, small and medium-sized businesses are not only showing signs of fatigue and reporting lower confidence, they are also facing several potential headwinds, finds a new CIBC Capital Markets report.

“Small and medium-sized enterprises were the pioneers of the economic recovery, able to generate jobs at a pace faster than managed by larger corporations. But the cycle is maturing, and SMEs are showing some signs of fatigue,” says CIBC Deputy Chief Economist Benjamin Tal, who authored the report, Canadian SMEs–The Cycle and Beyond, Business Insider reported.  

“External shocks such as higher interest rates, a stronger Canadian dollar, rising minimum wages and potential tax policy changes will further test the durability of this critical segment of the Canadian economy. Are they up to the task?”

With healthy cash positions and debt levels, and business investment in positive territory, large corporations are now outpacing SMEs in job creation. While there are no major red flags for corporate Canada, the report says a closer look reveals early signs of fragility.

Profit margins, at just under 7%, are consistent with numbers posted in the second half of the past two expansions, but this time, margins have been helped by lower unit labor costs, reflecting in part wages that are remaining tame far deeper into the cycle than textbook models predict.

Already, SMEs are telling us that the euphoric 4%-plus GDP growth is not going to last, Tal says. “Their confidence took a nosedive in the past few months, paving the way to a much softer economic reading in the second half of the year. And that reduced confidence is visible in the hiring momentum in the SME space,” with SME hiring slowing down and its share in employment falling, the report says.


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