Canadian Capital Confidence Barometer - October 2013 - April 2014

Economic outlook

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Confidence continues to rise

Ninety-eight percent of Canadian executives believe the Canadian economy is stable or improving, up from 79% a year ago.

The number of Canadians who believe the global economy is improving jumped to 56% from 22% a year ago. Informing this confidence is a global economy on a sounder footing. There has been improvement in economic conditions in mature economies and stabilization in major emerging markets. In the United States, economic growth has persisted, and corporate earnings, employment growth and credit availability are all improving.

In Europe, higher levels of employment, rising GDP and better access to capital provide evidence the region’s economic downturn is subsiding. Only 9% of Canadian respondents saw the eurozone as a risk to their business, compared with 15% who are concerned about continued slow growth in China.

How this growing confidence will affect dealmaking remains to be seen. Canadian companies continue to seek greater economic certainty before pursuing major acquisitions.

Confidence in economic stability

  • Economic confidence improving
    Canadian executives’ confidence in the local economy remains strong and is consistent with US respondents. There has been a shift in the number of respondents who see the economy improving from those who saw the economy declining 12 months ago. Like their US counterparts, Canadian executives are feeling more positive about the global economy. Fifty-six percent believe the global economy is improving, fuelled by stable underlying fundamentals (particularly in mature markets), growing GDP, strong credit availability and increased job creation.
  • Growth expectations continue to rise
    The vast majority of Canadian executives anticipate economic growth in both the global and Canadian economies. This correlates with the perspective of US respondents, who also see increased growth, particularly in their local economies, in the range of 1%-3%.
  • Developed economies will prompt global dealmaking
    Although Canadian executives’ confidence in the global economy is lower than the global average, at 55%, some of the world’s most mature and influential markets are increasingly confident in the strength of the global economy. Chinese respondents are the most upbeat, but mature markets such as the UK, Germany and Japan also have high confidence. US respondents rank slightly higher than the global average.

EY - What is your perspective on the state of your local economy today?

Improved fundamentals support increased dealmaking

  • Commitment to job creation underscores plans for investment
    Like their US counterparts, Canadian companies’ plans for job creation are up considerably from a year ago, highlighting the need to hire as they prepare for a coming wave of growth. The number of Canadian respondents expecting to reduce their workforce has declined steadily over the last three surveys.
  • Canadians concerned about failure to manage the withdrawal of US quantitative easing
    Canadian executives seem to be more concerned about the effect of the withdrawal of quantitative easing in the US on their business than their US counterparts, who are more worried about global political instability. And while 15% of US executives are still uneasy about the eurozone situation, only 9% of Canadian respondents felt this was a risk to their business.
  • Confidence spans leading economic indicators
    Canadian and US executives are broadly positive across local economic indicators — in Canada, all six metrics are up from 12 months ago. Canadians are more confident about economic growth and credit availability, while US respondents are more confident about corporate earnings and employment growth. However, companies are carefully managing the rate at which they implement their growth and investment strategies. As such, any dealmaking resulting from this economic positivity will likely be tempered.

EY - With regards to employment, which of the following does your organization expect to do in the next 12 months?