CEO survey: Canadian executives lead with cautious optimism despite challenges

Against the backdrop of a cooling economy, elevated costs of doing business and tight monetary policy, Canadian businesses are bracing for an expected short-term economic slowdown in 2024.

Although there has been an improvement in expectations regarding businesses’ financial performance since July, Canadian leaders are continuing to be cautious in their outlook.

Despite these challenges, Canadian leaders demonstrate a willingness to embrace and prioritize investments in the field of generative artificial intelligence (AI), despite potential concerns and reservations regarding the rapid evolution of this technology as well as changing regulation.

The following themes represent some of the key challenges, strengths and opportunities applicable to Canada: 

Canadian CEOs show cautious optimism heading into 2024 

Canadian and global leaders report increased costs of doing business and slower economic growth in key markets as the top two deterrents to maximizing revenue growth and profitability in 2024.

In terms of revenue expectations, Canadian leaders have a more conservative perspective compared to their global counterparts. Only 8% of Canadian leaders anticipate substantially higher revenues in 2024, in contrast to the global average of 13%.

However, Canadian leaders are more optimistic than in previous quarters, with a collective total of 60% expecting slightly or significantly higher revenues. Concurrently, Canadian leaders are also optimistic about increasing profitability, with 67% reporting slightly or significantly higher profits in 2024 than in 2023, compared to 65% globally.

Elevated exposure to risks is driving strategic decisions

In light of high costs of doing business and a slowdown in economic activity, business sentiments have taken a hit. Since July, Canadian and global CEOs have reported a higher degree of exposure to a variety of risks, including geopolitical conflicts, macroeconomic volatility, regulation, ESG and sustainability risks, and technology disruption, among others. Canadian CEOs continue to report higher levels of risk when compared to their global counterparts, potentially due to Canada’s reliance on global supply chains.

Since July, concerns around ESG and sustainability risks have increased notably among Canadian CEOs, with 92% reporting a moderate to high degree of vulnerability to ESG and sustainability risks, compared to the global average of 78%. Additionally, 88% of Canadian respondents highlight regulatory risks as one of the top considerations for future business performance, higher than their global counterparts (80%).

Further, geopolitical conflicts and trade tensions are a growing concern for Canadian CEOs, with 84% noting concerns relating to this risk factor, compared to 78% among global CEOs. The risk of geopolitical conflicts and trade tensions can affect global supply chains, which have resulted in notable challenges for the Canadian economy in recent years.

In response to such uncertainty, Canadian CEOs are reportedly more likely to consider restructuring or reducing their employee base (46%) than their global counterparts (36%). At the same time, 38% of Canadian leaders are considering a shift towards contract or hourly workers, in line with their global counterparts.

While business sentiment hints at a conservative position among Canadian leaders, their capital strategy continues to be bold for 2024. The majority of Canadian CEOs (96%) express their intention to pursue transaction initiatives in the next 12 months, surpassing their global counterparts at 89%. Of this, divestments, initial public offerings (IPOs) and joint ventures were the top choices of transaction initiatives by Canadian and global leaders.  

Despite uncertainty, leaders are prioritizing significant investments in generative AI

With the rise in use of generative AI across industries, business leaders are wary of potential challenges. As more companies claim to have experience in AI, the majority (72%) of Canadian CEOs report a high degree of difficulty in identifying credible partners or acquisition targets, compared to 66% globally.

At the same time, most global (77%) and Canadian (72%) leaders reported challenges in developing and implementing an AI strategy due to the uncertainty around generative AI.

All Canadian respondents indicated that they are making, or have made, significant investments in generative AI, compared to 99% of global CEOs. Nearly half of Canadian leaders are also sourcing funds primarily by reallocating capital from other investment budgets, highlighting AI as a strategic imperative for Canadian businesses. Comparatively, nearly 40% of global CEOs are reallocating budget from other investments to support AI investments.

As this technology is relatively new, respondents reported certain risks and challenges. Among Canadian CEOs, rapidly evolving technology as well as regulation were reported as the most prevalent challenges when allocating capital towards generative AI. Along global leaders, the complex impact of AI transformation on workforce was cited as the most prevalent challenge, followed by rapidly evolving technology, making it difficult to keep pace with developments.

While the rise of generative AI presents challenges, Canadian business leaders are making significant investments, recognizing its strategic importance for long-term growth and innovation.

Key Actions for Leaders

With the likelihood of a cooler economic environment, Canadian CEOs are prompted to adopt strategic measures to stay ahead of the market.

1. Adopt dynamic workforce planning strategies: Embed scenario planning into decision making by proactively evaluating potential changes in workforce needs and exploring alternative staffing models. This may also include developing plans for retraining or upskilling existing employees to adapt to changing demands and technologies.

2. Foster innovation through AI: Continue to build processes and guidelines to streamline adoption of generative AI in an evolving regulatory landscape. To maintain a competitive edge, leaders may also consider investment in building internal AI capabilities or establishing strategic partnerships with external experts.

3. Align with peers and industry leaders: Collaborate with Canadian leaders to understand best practices and strategies to overcoming economic challenges, managing risks and realising emerging opportunities to stay ahead of the global competition.

4. Continued focus on sustainability: With ESG and sustainability risks increasing in importance for Canadian businesses, leaders should review existing operations through the lens of climate change, social equity, and evolving regulatory environments. Effective updates to enterprise risk management strategies in light of such risks can be key to improving resiliency to external shocks.