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Global jitters put Canadian businesses on the defensive

Escalating uncertainty about the global economy is starting to weigh on Canadian businesses, prompting some to take action to revise their expansion plans.

A new report from Bank of Montreal, to be released Thursday, found one in three Canadian businesses have now "changed plans to invest, expand and hire" due to the gloomy global outlook.

While the European debt crisis is largely to blame, dashed hopes about the prospects for the U.S. economy are also contributing to Canada's corporate unease.

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According to BMO'S report, nearly one-third of business owners believe the U.S. economy could be stuck in a funk for the next five years. Many are also fingering that protracted underperformance as a major challenge for 2012.

"Understandably, business owners are increasingly concerned about not only the U.S., where recession risks are rising, but Europe's prospects as well, given the sovereign debt crisis that has engulfed the region," says Jennifer Lee, senior economist with BMO Nesbitt Burns.

"Compared to when Canada's recession officially began in the last three months of 2008, exports over the May-July period this year have slipped 6.7 per cent. But while Canadian exports to China have surged 80 per cent over that period, they've declined nearly 10 per cent to the U.S. and nearly 22 per cent to Europe."

Nonetheless, the U.S. is still considered the top foreign market among Canadian businesses eyeing expansion, according to the report. Europe is ranked second, followed by Central and South America.

BMO notes, however, that emerging markets are growing nearly four percentage points faster than the industrialized world, a potential bright spot for Canadian exporters.

The report's findings are based on a telephone survey of 509 Canadian business owners conducted by Leger Marketing between Aug. 30 and Sept. 16. The margin of error is considered to be plus or minus 4.4 per cent, 19 times out of 20. Over all, it found that Alberta-based entrepreneurs were most optimistic about improving business conditions in 2012.

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