The last 12 months have been a remarkable ride for business and the economy. We've seen high oil prices come and go, the dollar rise and fall, and markets and financial institutions rattled.
The fears we registered in the fall survey of ROB 1000 company executives have been confirmed in the winter edition: Canada is entering a deep recession. GDP is down, the ranks of the jobless are swelling, retirement savings are ravaged, our first trade deficit in decades has been recorded, house prices continue to fall and consumer confidence is at its lowest in a generation.
The wider economic fallout we've seen in the last three to six months has shifted the focus of government action and communications. Governments moved to address economic stimulus and GDP growth, as well as aid for industries and communities that are hurting, in the forestry and automotive sectors for instance. “Shovel ready” has supplanted “credit crunch” as the lingo of the moment.
In this survey, leading Canadian executives are sending a strong message to governments: The economic indicators listed above are the symptoms, the credit crisis is the disease. It is at the core of the economic crisis and growth will not return until it has been solved.
Without access to credit, companies of all sizes – but especially smaller ones – are slashing the kinds of expenditures that create growth, including capital investment, marketing, research and development and worker training.
We have been monitoring the credit situation since last September, and each quarter executives have told us the problem is getting worse, not better. Executives are not inclined to blame it entirely on worldwide forces – Canadian banks and lenders are seen as a major part of the problem.
What's more, consider that their concerns – and the continued if not higher level of pessimism we're seeing this quarter – persist despite major actions by governments to assist frozen credit markets. Central banks have cut rates to historic lows; massive investments were made in foreign banks; the U.S. Troubled Asset Relief Program sought to mop up billions in toxic assets; a restructuring plan for non-bank asset-backed commercial paper was completed; and the Government of Canada invested billions in secured mortgage assets. Yet essentially no executives told us they'd seen an improvement in credit and financing conditions in the last three months. This explains why executives increasingly say that the recession will not only be deeper than they had thought but also longer.
We're seeing that concern reflected in their lukewarm reaction to the recent budget. Most had a somewhat favourable impression of the budget but it missed the mark on what they consider most important. It isn't that the initiatives that were contained in the budget, other than the deficit forecasts, were opposed by executives. It's simply that they were seen as somewhat beside the point. Executives told us that responsible financial management and restoring confidence in the financial sector were top priorities – more important even than lowering the overall tax burden. Indeed, executives had a more positive reaction to the budget's $70-billion in assistance to credit and financing conditions than most other centrepiece items.
Part of this is a communications decision by the government. Dialling up communications about the large actions taken to free up credit, and dialling down the message about tax credits for renovations, would probably improve the business community's confidence that the Harper government understands the problem.
So, while helping to stimulate economic growth may be important, executives are saying we also need to focus on the crisis in the availability of credit. It is not only a top-of-mind concern for them now, it is forcing them to make operational decisions that will have long-term consequences. David Herle is principal of The Gandalf Group.
