As BAASS Business Solutions, we understand the intricacies Canadian businesses face, especially against the backdrop of the evolving economic landscape. In this blog, we review Canada's economic outlook from 2023 and identify major challenges impacting key industry verticals.
Canadian Economic Outlook 2023: A Snapshot
Before addressing industry-specific challenges, let's explore the overarching economic landscape of 2023. Businesses have had to strategically adapt to the impact of inflation, interest rates, and other global events. Despite a strong start to the year, consumer spending and business investment decreased in the second half of 2023. The Canadian government had also communicated its change in fiscal policy and spending promises in the 2023 Fall Economic Statement.
Household purchasing power diminished following higher energy and grocery bills along with rising debt payments. Though households may had savings reserved from the pandemic era, those funds are increasingly becoming allocated to mortgage payments.
Businesses also experienced headwinds as sectors experienced disruptions from labour disputes and global events. Tensions have caused Western companies to consider reducing their supply chain dependencies with China. Global trade in agricultural commodities were disrupted by global fires, floods, and conflict (like the war in Ukraine).
Bottom line: Businesses experienced muted economic activity in 2023 Q4. With softening employment and wage growth cooling consumer demand, companies have decreased their equipment and software investments. Companies have set cost containment as a priority to maximize existing resources.
Key Challenges and Industry Trends
Understanding the Shift in Giving
Canadian nonprofits are witnessing a shift in donor behavior influenced by economic uncertainties. The annual Grow Together Report by Sage revealed that two-thirds of Canadian donors are concerned about their financial health and intend to stop or reduce their donations. Survey respondents have also indicated that they intend to change how they donate by prioritizing organizations that have local relevance and demonstrated efficiency. Donors also expressed their intention to digitize their support. As a result, NFP organizations must implement a digital strategy in order to stay competitive (Sage, 2023).
Programs and Services
NFP organizations have seen an increased demand for services. This demand is coupled with higher costs on account of inflation, funding discrepancies, and declining volunteer participation. Nonprofit finance leaders have experienced higher pressures to be good stewards and bridge the gap.
Technology can be a barrier to most nonprofit missions as organizations lack the resources to implement their digital strategy. Finance teams use manual processes and cumbersome spreadsheets to track donations, funds, grants, and other transactions. Time is spent gathering data from various sources to produce reports in compliance with Canada's Not-for-profit Corporations Act.
Though Canada's manufacturing has been propping up several provincial economies, the trend has been flattening. Many leaders anticipate a downturn as Canada ranked below 50 on the Manufacturing Purchasing Managers Index in (July 2023). Despite an ease in labour shortage, the drop in consumer demand has taken steam out of the manufacturing sector.
Supply Chain Complexity
According to Sage research, almost fifty percent of Canadian manufacturers are being affected by regulatory change (such as United States-Mexico-Canada Agreement). The impact of not being able to quickly respond to changing customer needs and regulations include: high-cost production, suboptimal performance, reputation damage, customer attrition, and a drop in stock price. Companies are focusing on devising risk management strategies so they can respond quickly to trade volatility. For example, manufacturing companies are investing in advanced traceability technology to control quality, to improve accountability, and to promote authenticity.
Transforming Business Models
Manufacturers are undergoing a significant transformation driven by economic uncertainty, changing customer expectations, and the green agenda. For instance, manufacturers have been shifting away from building safety stocks to cost-cutting inventory reduction policies. Another trend we are seeing is an investment in the circular economy practices and servitization to enhance efficiency and sustainability (Sage, Discrete manufacturing in a changing world, n.d.). At the core of the change, manufacturers are transforming their manufacturing operations to improve customer satisfaction and profitability.
3. Wholesale Distribution:
Wholesale distribution companies are experiencing higher pressures as manufacturers demand more efficiency and retailers want more responsiveness. Meeting customer demand is further complicated by the increased time-to-market due to supply chain disruptions. Therefore, companies need to streamline and accelerate processes to improve efficiency and productivity.
Competition has never been so intense. While wholesalers and distributors have been slow to develop e-commerce capabilities, retailers are leveraging online marketplaces. Wholesalers and distributors are being pushed out by distributing giants (like Amazon) and retailers who want to work directly with manufacturers. To cope with the competition, wholesalers must modernize business processes to deliver the right product, at the right price, to the right customer, in the right time.
Modernizing Technological Application
Companies in general have not been achieving value from their business solutions. They have outgrown the capacity of their existing software and therefore losing insight into operations. If companies are to keep track of commodities and trace supply chain relationships, they are going to need to invest in a solution that manages the complex logistics.
4. Professional Services:
Housing Affordability Measures
In their Fall Economic Report, the Canadian Federal government announced their commitment to tackling the country's housing crisis. These measures include loan programs for apartment rental construction, more investment to support public housing, and other incentives to local governments to improve housing supply.
Inflationary pressures, including soaring demand and constrained supply, had caused prices to soar during the pandemic. According to PMI by S&P Global, though pressures have cooled, orders for construction materials have seen a sharp decrease. Materials are still projected to increase by three to five percent, which will continue to help normalize inflation and clear up supply chain bottlenecks.
Interest Rates and Demand
The Bank of Canada's willingness to talk about future rate cuts had markets rallying at the end of 2023. However, even if the BoC were to cut mid-June, interest rates will be slower to come down. With millions of mortgages coming due, Canadians are bracing for higher interest payments. Despite interest rates, JLL expects an increased demand for the construction and professional service industry. Canada faces supply shortages in the residential, industrial and infrastructure sectors. Furthermore, with businesses and households staying in place, they will look to companies that can remodel or tailor their space.
Empowering Your Business Journey
At BAASS, we are not just business solution providers; we are your strategic partners in navigating the complex terrain of the Canadian business landscape. Our commitment is to empower your business with tailored solutions, ensuring that you not only face challenges head-on but also seize opportunities for growth.
Let's book a free consultation to discover your tailored business solution made for industry specific business needs. Turn challenges into stepping stones for your business success in 2024 and beyond.
Economic Advisory. (January 2024), Weathering a freeze before the thaw: Economic outlook. Deloitte. https://www2.deloitte.com/ca/en/pages/finance/articles/economic-outlook.html
Singh, Sunny and Luis Castillo. (2023, December 04). Global Insight 2024 Outlook: Canada. RBC Wealth Management Insights. https://www.rbcwealthmanagement.com/en-ca/insights/global-insight-2024-outlook-canada
Wright, Craig. (2023, September 13). Canada’s Economic Engine is Gearing Down. RBC Thought Leadership. https://thoughtleadership.rbc.com/canadas-economic-engine-is-gearing-down/
Sage. (2023, April 18). Canadians re-evaluate how they support charities amidst financial concerns. Retrieved from sage: https://www.sage.com/en-ca/news/press-releases/2023/04/canadians-re-evaluate-how-they-support-charities/