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CEO survey: Canadian executives brace for a downturn

Expectations for an economic downturn continue to grow as the global economy responds to geopolitical uncertainty, therefore executives are under increasing pressure to navigate it with a clear purpose.

Expectations for an economic downturn continue to grow as the global economy responds to geopolitical uncertainty and the tightening of financial markets. Yet differing views persist as to the severity and duration of a potential downturn, as well as how to mitigate its future uncertainty.

Executives are under increasing pressure to navigate this uncertainty with a clear purpose, leading to delaying planned investments, reconfiguring supply chains and relocating operational assets.

Canada’s economy is no stranger to these challenges, but the interplay of Canada’s economy, government policy emphasizing sustainability, and volatility in global markets is creating a uniquely Canadian challenge.

 

In a recent EY study of 1,200 CEOs globally, participating Canadian executives revealed the following themes:

 

Lingering impacts of the pandemic

Canadian CEOs are expecting and planning for a severe and drawn-out economic downturn relative to their global peers, suggesting a tougher business environment in the near term. Globally, this downturn is expected to differ from past slowdowns, primarily due to lingering uncertainties relating to supply chain disruptions, talent shortages and the ongoing impact of COVID-19.

 

However, only 47% of Canadian CEOs share this global view and express greater confidence in navigating these challenges. They believe they may be somewhat more insulated from geopolitical tensions and energy insecurity than other countries. For 33% of Canadian respondents, pandemic-related issues were the main geopolitical driver for changes to strategic investment plans such as delaying planned investments and exiting certain markets.

 

Geopolitical challenges

The Canadian economy, due to its strong exports in commodities, goods and services, experiences greater exposure to macroeconomic trends requiring additional considerations from businesses in navigating global slowdowns.

 

To hedge against geopolitical uncertainty and risks in currency and commodity markets, 60% of Canadian leaders are prioritizing corporate finance, treasury and balance sheet management. Additionally, all Canadian CEOs indicated they are considering optimizing net working capital to provide further cushioning for their companies’ continued operations.

 

Experienced leadership

While global uncertainty is elevated, 53% of CEOs expressed a lack of confidence and/or comfort in their senior leadership to navigate an economic downturn. Canadian CEOs were more confident in comparison, as only 39% of respondents indicated this concern. However, confidence in Canada’s fiscal and policy decisions is low, with only 47% agreeing with measures taken, compared to 58% globally.

 

Opportunities in ESG

Canadian businesses are much more proactive when it comes to climate change impacts and building sustainability compared to their global peers, as 34% of Canadian CEOs reported this among their top risks, compared to 28% globally. As a result, 48% of Canadian CEOs plan to invest and lean in to ESG priorities to emerge from the downturn in a stronger position. In fact, 38% are expanding ESG/sustainability in the next six months as a core aspect of products and services offered to engage customers, meet regulatory requirements and improve ESG ratings.

 

Prioritizing people

A fifth (20%) of Canadian CEOs identified talent and workforce wellbeing as the primary investment area to emerge from the downturn stronger than their competitors, whereas only 14% of global respondents shared this view. Consequently, 34% of all Canadian CEOs are prioritizing adopting new working models and talent strategies to attract and retain employees in a historically tight labour market, compared to 29% globally.

 

Flexible work is increasingly seen as the tool to achieve that goal according to nearly 72% of Canadian CEOs. Additionally, while other organizations may be seeking a reduction in headcount, 56% of Canadian CEOs see this as an opportunity to attract talent to their own organization: 42% of Canadian leaders expressed interest in restructuring or reducing their employee base and training budgets, suggesting that different viewpoints prevail across the economy — and emphasizing the importance of sector-specific action plans.

 

Consumer-centricity

As an advanced economy, Canada benefits from a more developed services sector that keeps customer experience top of mind. Survey results show 38% of Canadian CEOs identified marketing and customer experience as their top two investment priorities to emerge stronger from the downturn, compared to 27% globally. To achieve these objectives, 36% are investing in technology in the next six months to optimize products and services to boost customer loyalty.

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Six ways Canadian executives can navigate the expected economic downturn

1.    Embed scenario planning before you delay or cancel your planned investments and before you exit certain markets.

2.    Challenge how you can adopt strategies to increase liquidity by optimizing net working capital to hedge against geopolitical uncertainty and risks in currency and commodity markets.

3.    Encourage trusting partnerships with third parties that support your leadership team’s confidence in navigating uncertain times. 

4.    Prioritize investments in ESG and sustainability to engage customers, improve ESG ratings and preserve business integrity. 

5.    Align your talent attraction and retention strategies to sector-specific action plans.

6.    Invest in technology that supports your customer experience objectives and boosts customer loyalty.

Summary

Lingering impacts of the pandemic, geopolitical challenges, experienced leadership, opportunities in ESG, prioritizing people and consumer centricity are some of the themes revealed in a recent EY study of 1,200 CEOs globally. We have identified six ways Canadian executives can navigate the challenges posed by these themes.

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