When you’re busy running your business, staying on top of the economy might feel like one more thing on a never-ending to-do list. We’re here to save you time. In this blog, we bring you up to speed with the current state of Canada’s economy and provide insights on what’s to come. Two key areas will be covered: inflation and interest rates.
A Brief Overview of Our Economy
The past few years have been nothing short of a rollercoaster ride for Canada’s economy. With a global pandemic, shipping delays, and tensions in Europe – we’ve had our fair share of challenges. Yet, our economy has proven resilient and continues to boom in 2023. Here’s why:
- Consumer spending is strong, particularly for services, reflecting strong domestic demand.
- Canadians have accumulated savings throughout the pandemic, providing a financial cushion.
- Our nation’s population reached 40 million in June with a population growth rate of 2.7%, the highest rate since 1957 (post-war baby boom).
- Our labour market is stable, with an unemployment rate of 5.5% in July.
1. Where we Stand with Inflation
Inflation in Canada has been all the talk lately. In June, the rate hit 2.8%, within the Bank of Canada’s target range (1% – 3%) for the first time since March of 2021. This was short-lived, as inflation increased to 3.3% in July. This increase was mostly caused by the rising cost of gasoline and food, along with higher mortgage interest costs.
Economists warn this could be bad news for the Bank of Canada. Although inflation is improving, the latest report makes another interest rate hike likely. According to predictions, inflation won’t reach its 2% target until 2025.
What This Means for Small Businesses
You might have seen your business costs go down a bit recently. Expect this trend to continue as high-interest rates begin to cool the economy. While lower costs may be a welcome change in the short term, a cooling economy could pinch your customer’s wallets. You may need to respond by adapting your offerings to meet your customer’s needs and what they can afford.
2. Where we Stand with Interest Rates
On July 12th, the Bank of Canada raised its benchmark interest rate to 5%, marking the first time it’s reached this level since April 2001. The bank is ready to continue to increase rates if inflation doesn’t start trending closer to its 2% target. With the next meeting scheduled for September 4th, economists expect another small hike. Current forecasts do not predict rates to come down until the second half of 2024.
What This Means for Small Businesses
It may be difficult to borrow money and manage debt due to the current high-interest rate environment. Don’t let this discourage you from borrowing. The benefits of having extra funds can sometimes outweigh the additional expense. Evaluate costs and benefits before making a decision. Consider alternative lenders, as they may be more flexible and able to help you secure the funds your business needs.
Will Canada be in a Recession in 2023?
Canadians are still spending money, and the job market is stable, so there are no clear signs of a recession in the short term. Of course, things can change quickly, and the second half of the year may bring new challenges for businesses. For now, a recession is on hold, or maybe even off the table.
Ways Your Business Can Take Action
You may be wondering if there are any steps you can take to protect yourself from a potential recession or future challenges. Here are a few recommendations:
1. Strengthen Your Position
You must prepare for the future while optimizing the present:
- Build cash reserves – Set aside extra cash to help your business navigate unexpected challenges
- Explore new markets – Whether entering a new geographic region or targeting a different demographic, growth often comes from exploring the unknown.
- Invest in technology – It’s no longer a luxury, it’s a necessity. Make sure to stay updated with the latest technologies to give your business an edge over its competitors.
2. Stay Informed & Adapt
A lot could change in the following months. Keep an eye on the economy, trends, and overall business landscape. Surround yourself with professionals or mentors who can provide valuable advice. Change is constant, but that doesn’t mean it has to be a threat.
3. Make Budget Cuts
Your business needs to get lean. Look closely at your budget and identify unnecessary expenses that might impact your bottom line. Are there monthly subscriptions that you’ve been procrastinating to cancel? Don’t overlook small, recurring charges that can add up over time.
Consider other areas where cuts can be made, like renegotiating contracts with suppliers or reducing utility bills with energy-saving measures. You can also cross-train employees for multiple roles.
4. Stay Positive
This doesn’t mean you should ignore the reality or challenges you will face. Instead, it means focusing on your strengths and leveraging them to create opportunities. What is it that you do extremely well? Prioritize these skills to build a strong and resilient business.
The Bottom Line
Inflation is slowly trending down, but high-interest rates are still a cause for concern for small business owners. Things might not get better quickly, but that doesn’t mean you should give up. It’s time to double down and think long-term. Invest in your business and look for ways to grow, even during tough times. Every economy has opportunities – you simply have to find them.