With renewed signs of a global economic slowdown, Canadian businesses should be bracing for softer domestic demand as well. This is especially the case for small businesses, which tend to be far more exposed to the domestic market, according to a report from Scotia Economics.
“Small firms are particularly sensitive to domestic demand, so their ability to maintain momentum will depend in large part on the resilience of consumer and business expenditures,” says Adrienne Warren, senior economist, Scotia Economics.
The affects of a Canadian recession will be unequally distributed across both geography and sectors, she explains. These companies in the resource sector should be better able to weather a downturn, as will those that sell to other businesses.
Consumer-focused companies, however, and those that export to the U.S. or Europe, will suffer.
As a result, business activity in Western Canada and Newfoundland and Labrador should hold up fairly well, while businesses in Central and Maritime Canada can expect slower growth.
“We expect consumers to be cautious spenders for the time being, given high household debt loads and some recent softening in employment conditions. A more subdued outlook for housing and renovation activity will reinforce this outlook.”
“Beyond the adjustment to a more muted outlook for global demand over the near-term, small businesses must continue to adapt to broader longer-term shifts in the economic landscape,” Warren says. “Key issues facing small businesses include an aging population, rising immigration, skilled labour shortages, particularly in the construction trades, a high Canadian dollar and high energy costs.”