How bad is Canada’s economic outlook?

Two recent surveys reveal brands are facing tough economic times as a result of political and social instability.
Economic Outlook

Canadian organizations are facing a difficult economic outlook and a drop in consumer spending as a result of global trade tensions and other forms of political instability, according to recent reports from the Bank of Canada and Ipsos Canada.

On Monday, the Bank of Canada unveiled its quarterly business outlook for Q1 of 2019. For the first time since the third quarter of 2016, the outlook was negative, suggesting a “softening in business sentiment,” according to the bank. This comes after a “strongly positive” winter period.

Sales growth, anticipated spending and hiring intentions were all down for the quarter, as were most other measures, with many falling below their historical averages.

“The main headwinds are a more uncertain outlook in the Western Canadian energy sector, continued weakness in housing-related activity in some regions, and tangible impacts from global trade tensions,” the bank said.

The survey, conducted between Feb. 19 and March 13, was based on interviews with executives from 100 companies across sectors and industries in Canada.

Overall, 39% of companies reported stronger sales growth over the last 12 months, while 45% reported a decline in sales growth. At 40%, the companies that reported expecting higher sales growth over the next year outnumbered those who expected weakening growth (34%). Overall, 39% of respondents reported planning to increase investments, while 19% planned to cut spending over the year ahead.

The findings confirm analyses of Statistics Canada data throughout the last year that have pointed to weakening sales growth in retail. The last quarter of 2018 was among the worst for retail sales over the last six years, with growth reaching 2.7% in 2018, compared to 7.1% the year before. It’s a downward trend that persisted into the first quarter of 2019, with sales increasing by a meager 0.4% year-over-year for the period.

In addition to these economic indicators, results from Ipsos Canada’s “Disruption Barometer for Canada” suggest the country is currently in “a state of mild to moderate social, economic and political instability,” which could have an impact on business outcomes.

For the fourth month in a row, the Disruption Barometer (which constitutes only one part of the company’s IpsosContext report) sat in negative territory. A drop below the historical norm suggests lower consumer confidence and a higher potential for social and political disruption, according to the company.

The barometer includes both traditional consumer metrics and social and political metrics, such as how people feel about the country and their future. The goal, says Mike Colledge, president of public affairs at Ipsos Canada, is to help private and public organizations marry “social understanding with consumer understanding.”

For brands, the extended period of instability means consumers are likely to spend less. They are also more likely to be critical of their interactions with businesses and to demand higher user and customer satisfaction, according to Ipsos.

What this means for consumer-facing organizations will depend on which category they play in, Colledge says. For many, it’s a matter of adjusting the tone of their communications to match the prevailing consumer sentiment.

“There isn’t one thing that you can say [that applies] to everybody,” he says, “other than people are probably less likely to try new things  and spend money, even if they feel okay in their own consumer views of the world.”

Just as businesses tend not to invest in capital if they’re unsure of the political climate in the country, he says, the public tends to act the same way.

While the Disruption Barometer revealed people would otherwise be willing to spend money (as a result of lower interest rates and job security), economic and political factors, such as the affordability of healthcare and the implementation of a carbon tax, are encouraging them to hold back on spending, Colledge says.