Canadian economy heading toward a slowdown, but inflation on the right path and still no recession in sight for the short term: CFIB forecasts
Toronto, April 13, 2023 – The Canadian economy is expected to avoid a recession in the first half of 2023, with a growth rate of 2.5% in Q1 and 1.2% in Q2, according to the latest Main Street Quarterly report by the Canadian Federation of Independent Business (CFIB).
The Consumer Price Index (CPI) inflation, both total and excluding food and energy, continued receding in the first quarter of 2023, reaching on a year-over-year basis 5.2% for total CPI and 4.8% for CPI excluding food and energy. The corresponding forecasts for the second quarter are 3.3% and 3.7%.
“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 contracted by 0.9% in Q1, although they remain higher than a year ago. In the second quarter, sales are expected to grow by 0.6%.
Private investment is forecasted to contract by -4.7% in Q1 and -1.5% in Q2, reflecting a real challenging financial environment and lack of true certainty for businesses at the moment.
Job vacancy rates stabilized in Q1 2023
The national private sector job vacancy rate remained steady in the first quarter (4.7%), and 658,900 jobs went unfilled.
“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.
Across the country, several provinces, including New Brunswick, Ontario, and Manitoba saw slight quarterly declines, compared to Q4 2022. On the other hand, Newfoundland and Labrador and Quebec recorded the highest vacancy rates of 5.5% and 5.2%, respectively, in the first quarter.
Businesses in the personal services, construction and hospitality sectors continued to be the most affected by labour shortages with vacancy rates of 7.5%, 6.3% and 6.1%, respectively.
Average wage increases in Q1 2023 remain high despite a downward trajectory
This issue of The Main Street Quarterly takes a special look at businesses’ wage increase plans. Average wage increase plans peaked at 3.4% in Q2 2022 and, after an initial drop, have been seesawing since Q4 2022. They sat at 3.1% in Q1 2023 amid a tight labour market and high inflation.
Small businesses struggling with labour shortages are more inclined to raise wages. In fact, businesses without shortages plan to increase wages by 2.4%, while those experiencing shortages of both skilled and unskilled/semi-skilled workers are expecting to increase wages by 3.8%.
Some sectors, such as hospitality and transportation, had more businesses increasing wages by 6% or more, which greatly influence their average wage increase plans, reaching 4.1% and 3.6% respectively.
“Analysis and forecasts based on small business data support a case for cautious optimism as we’re approaching the busy summer months. 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,” Gaudreault concluded.
Read the full Main Street Quarterly here.
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Dariya Baiguzhiyeva, CFIB
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.
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