Cdn. economy expected to remain sluggish in Q1: CFIB

TORONTO — The Canadian economy is expected to display sluggish growth in Q1 2024, after having been more or less stuck in neutral in Q4 2023, according to the latest Main Street Quarterly report by the Canadian Federation of Independent Business (CFIB).

Key highlights

• CFIB’s forecasts in partnership with AppEco suggest the Canadian economy contracted in Q4 2023 (-0.2%) but will rebound to 0.5% in Q1 2024.
• Consumer Price Index (CPI) inflation, both total (3.2%) and excluding food and energy (3.4%), receded in Q4 and is expected to be stable in the first quarter of 2024.
• The national job vacancy rate continued to decrease, with a slight drop to 3.7% in Q4. This represents 523,000 unfilled positions.
• Most businesses are still considering increasing prices in 2024. However, the average price hike is expected to be lower than in previous post-pandemic years at 3.1%, and fewer firms will be increasing prices than in previous years.
• A special look at manufacturing businesses reveals their optimism over the short and long term has been declining rapidly for the past two quarters. An increasing share of manufacturers also report insufficient domestic and foreign demand.

Conclusions by CFIB’s chief economist and vice-president of research Simon Gaudreault:

Although the economy experienced a mild technical recession according to the forecasts and official definitions, the story is actually a bit more nuanced than that. Our analysis shows some key macro indicators (sales, employment) continue to display a certain strength, while at the same time others such as investment and optimism on Main Street (as reported in our latest monthly editions of the Business Barometer®) are weak. In any event, current forecasts point to a short-lived contraction of the overall economy, with a return to positive growth in early 2024. A real recovery for the small business sector should arrive much later given the enduring poor business environment.

Inflation is generally on the downward trend, but our forecasts of some of its classic measures remain just shy of the Bank of Canada’s inflation-control target range of 1 to 3%. Other measures of underlying inflation rather indicate that we are within range, and much closer to the 2% midpoint. Given the current slowdown, the breadth of challenges facing Main Street and the delayed effects of past interest rate hikes, the Bank of Canada should seriously consider making monetary policy less restrictive as of next spring.

Private investment plans are at their lowest level ever, having severely dropped by 12% compared to Q3. This is mainly driven by very low long-term small business confidence. Business owners who are feeling rather pessimistic about their future due to general uncertainty, various cost pressures and tax increases weighing on them are significantly less likely to invest in their business.