After the cataclysmic events of 2008, Canadian executives were discouraged. Only 11 per cent surveyed in early 2009 predicted the economy would grow over the coming year. But by September, 2009, the vast majority predicted it would be in growth mode, and opinion stayed optimistic for seven successive quarters.
Looking back over the past two years, while few executives expected a fast recovery and strong growth, many may have been content to assume the worst was over. Stimulus had worked, and stability was the order of the day.
Then, in September, executives began dialling back expectations, and that has continued in the latest C-Suite survey. Executive forecasts for their own companies' performance are now back to the level they were in the fall of 2008. Any sense of strong growth is confined to the resources sector of the Canadian economy. Manufacturers are more likely to think their companies will experience decline this year than to think they will grow strongly.
What began in August with serious concerns about U.S. and European debt and bank stability has developed into a fundamentally poorer view of the economy as a whole. In tandem, we've seen growth forecasts cut and a profound realization that the economy will be in a very weak and fragile state for the foreseeable future. Seven in 10 Ontario executives are worried about a Canadian recession.
Most interesting is the extent to which the Canadian business community is now focused on events outside of our borders and outside of our control. The issues dominating business in 2006 were almost entirely domestic – skilled labour shortages, the exchange rate, taxation of income trusts and the level of taxation over all. Now domestic issues are barely a blip on businesses radar. Business people see the global economic situation as overwhelmingly the dominant threat.
This has caused some dramatic changes in business's expectations of government, most particularly with regard to deficits. In 2006, the most important request executives had of the federal government was to keep balancing budgets and paying down debt. As recently as a year ago, they were expressing great discomfort with the deficits being run in Canada. Now, things are bad enough that executives have shifted almost completely in support of, or at least understanding the need for, running a deficit until 2016. They see the Canadian government itself as hostage to world developments.
At the same time, executives are concerned about rising anti-business sentiment driven by resentment at the inequities exacerbated by the economic crisis, and environmental concerns. Executives have long been opposed to red tape; now they see a link between anger at business and rising regulatory costs of doing business, of which the Keystone pipeline decision is emblematic.
There is worry – especially in the resource sector – that the cost of securing societal permission for their operations is going up. Still, seventy per cent of executives think corporate social responsibility is more than a nice thing to do; it is an essential part of doing business.
Bank of Canada Governor Mark Carney recently made the case that, given the need for government and consumers to pay down debt, the only route to growth for the economy is through aggressive increases in business investment.
Considering the negativity about world markets and concern about future recessions and credit crunches, it is easier to see Canadian business hunkering down than opening the wallet and taking chances.
David Herle is principal and Alex Swann is vice-president of Gandalf Group.