Canadian economy to avoid recession, says CFIB report
The Canadian economy is expected to avoid a recession in the first half of 2023, according to the most recent Main Street Quarterly report from the Canadian Federation of Independent Business (CFIB) and AppEco, an economic consulting firm.
The report projects the economy will slow down but not experience a recession, with a growth rate of 2.5% in the first quarter and 1.2% in the second quarter of 2023.
An earlier forecast from Deloitte projected a mild recession, with -2.4% growth in Q1 and -2.7 growth in Q2 before rebounding to 0.2% growth in Q3. The Deloitte forecast was completed prior to OPEC’s announcement this month that it would further restrict oil production.
The CFIB report expects consumer price index (CPI) inflation to continue declining, falling from 5.2% in Q1 to 3.3% in Q2.
"Our economic forecasts suggest inflation is moderating. While inflation is still too high, the quarter-over-quarter annualized rate of core inflation is forecasted at 2.8% for Q2. This is within the Bank of Canada's 1% to 3% target range and therefore supports its decision to pause interest rate hikes," said Simon Gaudreault, CFIB's chief economist and vice president of research. "The GDP and inflation forecasts are encouraging economic news, but rising energy prices in the short term due to the OPEC+ production cut could complicate small business recovery."
Retail sales fell 0.9% in Q1 but are projected to rise by 0.6% in Q2. Private investment is expected to contract by 4.7% in Q1 and 1.5% in Q2, reflecting a challenging financial environment and uncertainty for businesses.
The national private sector job vacancy rate remained flat in Q1 at 4.7%, with 658,900 unfilled jobs. The personal services, construction, and hospitality sectors were most affected by labour shortages, with vacancy rates of 7.5%, 6.3%, and 5.2% respectively.
“Although the national vacancy rates have eased, shortages of labour remain a big headache, with 207,800 more job vacancies nationally (+46%) than at Q1 2019, which was at that time already a historical peak in our data. Our members continue telling us how they need to work more hours and have to decrease their service offerings to make up for staffing challenges," said Andreea Bourgeois, director of economics at CFIB.
After peaking in Q2 2022 at 3.4%, average wage increase plans have declined slightly to 3.1% in Q1 2023, amid tight labour markets and high inflation. Businesses experiencing worker shortages had higher wage increase plans, at 3.8%, compared to 2.4% for businesses not experiencing shortages.
The hospitality sector was expecting to increase wages most, at 4.1%.
“Analysis and forecasts based on small business data support a case for cautious optimism as we're approaching the busy summer months,” Gaudreault said. “However, the costs of doing business remain historically high and the current business environment is unfavourable to pandemic debt repayment. Going forward, stronger revenues and more certainty will be essential to supporting a true business recovery in 2023.”
