Federal corporate tax rates have fallen from 28 per cent in 2000 to 18 per cent in 2010.Kevin Van Paassen
Webster's Dictionary defines the word optimism as "an inclination to put the most favourable construction upon actions and events or to anticipate the best possible outcome." That is why optimism is the best way to describe the Canadian C-Suite's perceptions of the economy at the current time.
The most dramatic shift in opinion in the 15-quarter history of this survey project has most business leaders expecting the Canadian economy to start growing no later than the next calendar year, with many expecting growth much sooner than that. Most also think their companies will grow this year, and can envision the day when they are putting more money back into capital spending and hiring again.
However, it is difficult to see what that optimism is based on. Last quarter, most executives said that this was the worst business climate they had ever seen. Credit issues were seen as the primary problem. This quarter, 75 per cent of executives think that access to credit has either not improved or has deteriorated. In truth, it is not what they have experienced, it is what they anticipate. It is belief in the green shoots.
So, despite the lack of perceived improvement in credit so far, executives see something that makes them expect credit conditions to improve this year. The C-Suite is taking significant comfort in the performance of the TSX, and virtually all expect continued improvement there. However, that is not something they consider to be an indicator of economic turnaround. The key indicators business leaders are looking to for indications of economic growth over all, with the exception of commodity prices, relate to the consumer. Executives want to see lower unemployment, higher consumer confidence and retail sales, and more housing starts. Sadly, their own forecasts indicate that lower unemployment is some time away, and myriad studies indicate that the hangover of personal debt may prevent the consumer from pulling us into recovery.
Executives, much more cautious now about their ability to forecast into the future, are demonstrating they are more optimistic than confident by the fact that their plans for growth are cast into the future - few are investing in capital, human or otherwise, at the current time. Only half of executives will even be considering additional capital spending in the next six months, and only a third will be considering hiring in that time period. While consumers have entered a "culture of thrift," business leaders have entered a "culture of prudence."
The lessons they have learned from this economic crisis tell them to be more wary of debt, to more closely monitor spending, and to be prepared for the unexpected development. We are likely to have an economy that has both consumer and businesses behaving in a much more cautious way than they did prior to the recession. Expectations are clearly tempered, as executives share with most Canadians the belief that the "new normal" post recession will be a lower standard of living for Canada.
The economy may turn around in the next year. But C-Suite leaders are not telling us it will, as much as they are hoping it will.
David Herle is principal of The Gandalf Group