Sharp decline in Canadian business confidence

Continuing uncertainty about the global economy and measures the United States might take to deal with its budget deficit has pushed net optimism among North American CFOs in the fourth quarter of 2012 to its lowest level of the year, shows the Deloitte CFO Signals survey. The decline was particularly large in Canada, where net […]

By Staff | January 9, 2013 | Last updated on January 9, 2013

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The decline was particularly large in Canada, where net optimism (the difference between the percentage of CFOs expressing rising and falling optimism) fell from +47 in the third quarter of 2012 to -6 in the fourth, while U.S. CFOs reported their net optimism fell from -16 last quarter to -21 this quarter.

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As a result, companies in both countries have lowered their growth expectations for capital investment, R&D, and marketing and advertising spending, and don’t expect much growth in domestic hiring.

“Canadian companies appear to be increasingly concerned about a negative impact on their operations caused by ongoing economic problems in the United States and Europe,” says Trevor Nakka, co-leader of Deloitte Canada’s CFO program. “This is leading many of them to take steps to preserve cash and protect revenues from existing markets rather than investing and expanding.”

Despite the drop in net optimism, earnings growth expectations were improving in both Canada and the United States, notes the quarterly study that tracks the thinking and actions of North American chief financial officers representing companies with over $5 billion in annual revenue.

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However, while U.S. CFOs raised their sales growth expectations in the fourth quarter, Canadian CFOs lowered theirs to the lowest level in more than a year.

“Unlike in previous quarters, when companies had relatively high expectations for hiring and capital expenditures, we now see them pulling back on investments,” says Dick Cooper, co-leader of Deloitte Canada’s CFO program. “It’s no surprise that a lack of clarity on fiscal policy is one of the top challenges facing North American businesses.”