GUEST EXPERT. By ending the pause on interest rate hikes at the start of the summer, the Bank of Canada put additional pressure on the budgets of consumers and homeowners. This tenth increase, decided since spring 2022, also had an impact on the confidence of business leaders, who had shown greater optimism since the beginning of the year.

As a result, many businesses in Quebec and elsewhere in Canada now believe that economic conditions are likely to worsen over the next 12 months, according to a recent BDC survey. While a recession is still not expected by the end of the year, overall optimism about Canada’s economic situation has nevertheless waned: in July, 47% of businesses in the country estimated that the situation would worsen, compared to 42% in April .

Investment projects on ice

High interest rates and economic uncertainty could harm companies’ investment plans. While 85% of Quebec SMEs surveyed last July said they intended to invest more or as much as the previous year, only 45% of them said they were confident about the implementation of their project. This result represents a 10 percentage point decline in their trust since April.

The loss of confidence in the likelihood of continuing with their investment projects could be partly due to the financing crisis. In July, SMEs in Quebec said two-thirds (64%) of their financing applications had been approved, compared to 85% in April.

The rise in interest rates means that a majority (75%) of SME managers are looking for short-term financing to maintain and continue their activities. They meet their financial needs by accessing lines of credit and using business loans, which are generally more accessible than other options.

More optimistic in Quebec

Still, Quebec business leaders are more optimistic than their Canadian counterparts, as only 39% of Canadian SMEs (compared to 45% in April) say they are confident in moving forward with their investment projects, mainly to increase efficiency, introduce new technologies or even improve their sales.

In addition to external conditions such as interest rates, the economic environment or even inflation, internal factors such as the needs of the company, the cash flow situation and the demand for goods and services are also likely to have an influence on the investment decisions of company executives in the near future.

And that, even if medium-sized companies’ sales expectations for the coming year remain relatively stable. Another observation: Three out of five Canadian SMEs (59%) said they were profitable last year. A quarter said they had broken even, while almost one in five said they had lost money. Corporate profit margins have been declining since the beginning of 2022, but are still above pre-pandemic levels, a Statistics Canada survey also shows.

Given this observation, it is therefore not surprising that business leaders’ pessimism has increased in recent months. Hoping that this wind will quickly change direction to dispel their worries and worries.