Just as most Canadians are of the view that the worst is over for the economy, this edition of the C-Suite quarterly survey reveals that senior executives are now all but unanimous that the recession is over and the Canadian economy is in for a run of growth.
But as we found in the last two quarters, there are still very few who are willing to say Canada will see anything more than modest growth – now or in the medium-term.
Because of the fragile nature of the recovery and the limited growth anticipated, an anxious business community is counting on judicious public policy choices by governments and by the Bank of Canada.
The vast majority of Canadian executives support the Harper government, and the esteem granted Finance Minister Jim Flaherty has risen considerably during the course of his stewardship through the recession. Most believe that the $19-billion in stimulus measures outlined in the Conservative government's action plan are about right, and the government gets credit for taking action that helped the economy start to grow again. But business leaders are expecting more from this, or any, government than was forthcoming in the recent budget.
Most criticism of the budget from business leaders is aimed at the fiscal plan. We saw last quarter that the C-Suite is more comfortable with deficits in this economic environment than might have been thought. Nonetheless, even by an unexacting standard, this budget did not pass muster. Less than half think that the federal government will be able to balance its books in 2015, as the budget outlines. Few have any confidence that it will happen.
A majority of respondents was concerned with the size of this year's deficit – in excess of $50-billion and far larger than the so-called stimulus. And still more – two-thirds of those surveyed – were not comfortable with running deficits until 2015. They view the departmental spending freeze announced in the budget to be the minimum of action from government in this regard. Very few categorized it as too much restraint. Just under half said it was about the right amount.
Even more telling is that executives are not only willing to forgo deeper corporate tax cuts – a clear demand from business in surveys past on how to spur the economy – most agreed that in order to eliminate the deficit, some form of tax increase will be necessary.
Executives are not only saying “get serious,” they're also saying “get real,” starting with planning. Most do not share the expectation that we will see the economy grow at a rate of 3 per cent a year on average. Fundamentally, they see the whole process of five-year forecasts as flawed. The vast majority of those surveyed said government cannot make realistic forecasts over such a timeline.
While they want deficits eliminated, and they see spending restraint and tax increases as necessary to do so, they would not want any of that happening now. The economy is too fragile.
Bank of Canada Governor Mark Carney is also in the spotlight. Almost half of businesses think interest rates need to rise, indicating growing concern among executives about inflation. But the other half would oppose rate increases, many of them strongly.
There is no question that with the amount of personal debt consumers are carrying, rate increases could kill any prospect of a consumer-led recovery.
A rate increase, combined with the concern among some companies – though not most – about the impact of a higher dollar, all speak to the delicate balance executives want to see in the short-term. The C-Suite is telling government to get back to the fundamentals – balanced budgets, low inflation, reasonable planning assumptions – but be careful not to damage a long-awaited and still vulnerable recovery.
David Herle is principal and Alex Swann is vice-president at the Gandalf Group.
