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Revenues up, but Canadian businesses growing concerned about economy: report

But while business owners remain optimistic going into 2019, investment intentions are flat compared to last year.
But while business owners remain optimistic going into 2019, investment intentions are flat compared to last year.

Canadian entrepreneurs expect revenues to increase in 2019, but many are growing concerned about uncertainty surrounding the economy and labour shortages, according to a new report by the Business Development Bank of Canada.

The report, Investment Intentions of Canadian Entrepreneurs, released Tuesday, looks at the 2019 investment outlook for small-to-medium sized businesses across the country. BDC interviewed more than 4,000 business owners about their investing intentions for the next year.

The report found that, with the economy expected to grow by 1.9 per cent in 2019, optimism regarding business prospects for the year is still high among businesses across Canada. According to the survey, 73 per cent of respondents expect an increase in revenue, a percentage point increase from 2018.

“The level of confidence among businesses is the same as last year, and I think that’s good news because there is a lot of uncertainty around the economy,” Pierre Cléroux, the vice president and chief economist at BDC, said in an interview with Yahoo Finance Canada.

But while business owners remain optimistic going into 2019, investment intentions are flat compared to last year. Thirty-two percent of respondents said they would spend less than they did last year, while 31 per cent said they would spend more.

“Businesses are feeling optimistic, they are still investing, but one of the reasons why they aren’t investing more is a shortage of labour,” Cléroux said.

“It’s getting more and more difficult to recruit people. When we asked businesses, ‘Why aren’t you investing more?’ the number one reason is because they have difficulties in recruiting people.”

The labour shortage is an issue that’s becoming increasingly acute, according to the report. As revenues grow, businesses are hitting capacity and struggling to find the qualified workers needed for continued growth.

“The labour shortage that has plagued Canada for two years is holding back investment,” the report said.

“This is the top-cited problem in all provinces except Alberta and Saskatchewan, where many business owners are losing faith in the economy.”

Still, investment intentions are picking up in some provinces, including British Columbia, Manitoba and Alberta.

In Alberta, the ramped-up investment is focused in the services sector, while intentions remain weak in the natural resources and construction sectors.

Despite the boost to investment plans, Albertans remain the most pessimistic about the Canadian economy. Just 35 per cent of businesses surveyed reported having confidence in the economy.

“It’s not surprising that Albertans are pessimistic, because of the oil price drop and struggling economy over the last few years,” Cléroux said.

“Growth in Alberta is going to be around 1.5 and 1.7 per cent, when the growth used to be around 5 per cent. That is quite the difference.”

Quebec is most optimistic going into 2019, with 78 per cent of respondents saying they are confident in the economy, followed by the Atlantic provinces (60 per cent), Ontario (58 per cent) and B.C. (56 per cent.)

Most companies that are investing plan on using revenues for new technology, a shift from last year, when the focus was largely on purchasing new manufacturing tools. According to the report, 43 per cent will invest in adopting new technologies.

“The way businesses are investing is different,” Cléroux said. “They are not investing as much in buildings and equipment. They are investing more in technology, employee training, research and development. It’s a new phenomenon.”

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