With the U.S. economy growing slowly and a potential disaster looming in Europe, Canadian executives are willing to cut Ottawa some slack on its slow-motion timetable to eliminate the deficit.
The federal government’s move in November to push back the target date for a balanced budget to 2016 has been met with widespread support from the corner office, according to the latest C-Suite survey of Canadian corporate executives.
Almost three-quarters of respondents agree with Ottawa’s decision to run a deficit until 2016, a sharp contrast to eighteen months ago, when almost two-thirds said they thought a 2015 target date for a balanced budget was too far down the road.
“If you tighten up too fast, too soon, we really run a serious risk of going back into a recession that will last another couple of years,” said Constantine Karayannopoulos, chief executive officer of Neo Material Technologies Inc., a Toronto company that makes specialty magnetic powders. A gradual approach makes sense right now, he said, when “there is enough austerity coming at us from Europe and the United States.”
Those surveyed were much less keen on Ottawa tackling the deficit through deep spending cuts than they were just a few months ago. In February, 39 per cent said aggressive cost-slashing should be a high priority. Now just 23 per cent want that approach.
Even in Western Canada, where the economy is in better shape than elsewhere, executives understand the need for a go-slow approach to balancing the budget.
“As good as the economy is in Alberta, we recognize it is not perhaps as buoyant in Central Canada,” said Matt Campbell, CEO of Rocky Mountain Dealerships Inc., a Calgary-based agriculture and construction equipment dealer. Consequently, he said, “we shouldn’t have deficit reduction at any cost, but [Ottawa should take] an extra year or two and support the economy if it needs it.”
Mr. Campbell’s optimism about the western economy reflects a sharp regional contrast among executives about the overall state of the Canadian economy. Almost 80 per cent of executives in the West are projecting growth over the next year, while just over 60 per cent of those in the rest of the country expect expansion.
“Sometimes it is hard, sitting in Alberta, to think the economy needs any help,” Mr. Campbell said. Indeed, the biggest concern he has is manpower – it is getting harder to fill key jobs in Alberta because so many baby boomers are retiring, and the influx of Atlantic Canadians moving west to work has slowed.
While Canadian executives are less optimistic about the American economy than our own, they are not as discouraged as they were a few months ago when U.S. debt had just been downgraded and the country faced a possible shutdown of its government. In September, two-thirds expected the U.S. economy to decline in the next year; now that number has fallen to less than half.
Mr. Karayannopoulos said his relatively positive view on the U.S. economy is based on the “decent” numbers on growth and job creation that have been released south of the border in recent months. “However, I don’t think we should fall into unbridled optimism,” he said, because “there are a lot of deep structural problems, and they have a very inflexible sclerotic political system going into an election year.”
Bruce Waterman, executive vice-president at fertilizer producer Agrium Inc., said he is much more concerned about Europe than the United States, because of the potential global impact of the debt crisis that is unfolding on the other side of the Atlantic.
“The future of Europe seems to be a lot more uncertain … and problematic, than in the U.S.,” he said. “Probably the biggest risk for the U.S. economy is what happens in Europe, and therefore [it is also] the biggest risk to the Canadian economy.”
Mr. Waterman said he is very concerned about the failure of European leaders to address the current crisis. “The somewhat tentative steps they are taking have not convinced the capital markets, or the rest of the world, that they are really going to address the problems,” he said.
One issue where there is strong consensus among senior executives across the country is the delay of the Keystone XL pipeline.
More than 80 per cent said U.S. President Barack Obama’s delay of a decision on the pipeline is pure political intervention, and only 11 per cent feel there are valid concerns about the environmental impacts of the project.
It is “ludicrous” that environmentalists are opposing the Keystone pipeline when the alternative is for the U.S. to buy oil shipped by tanker from Venezuela and the Middle East, Mr. Waterman said.
No matter what happens with Keystone, it is crucial that Canada seek out new markets for its oil and gas, he said.
“When you have, effectively, only one export customer, you are not going to get the optimum price.”
The quarterly C-Suite survey was conducted for Report on Business and Business News Network by Gandalf Group and sponsored by KPMG.
The survey interviewed 150 executives between Nov. 25 and Dec. 9, 2011. Respondents represent ROB 1,000 companies from across Canada in the manufacturing, service and resource sectors. The margin of error is 7.4 percentage points, 19 times out of 20.
Each quarter, a $1,000 charitable contribution is made on behalf of a survey participant. For the September survey, a donation was made to Centraide Abitibi Témiscamingue et Nord-du-Québec on behalf of Tyler Mitchelson, president and chief executive officer of Royal Nickel Corp.
Want to know more about what Canada's business leaders think? Watch for coverage throughout Monday on BNN.