Key insights from MNP's Business Owner Series webinar

Inflation, interest rates, and an evolving political landscape are creating an environment of uncertainty for Canadian business leaders. In the latest installment of MNP’s Business Owner Series, we brought together three respected individuals to discuss Canada’s economic outlook and its implications for mid-market businesses. Hosted by Sean Simpson from Ipsos, the webinar featured insights from Scotiabank chief economist Jean-François Perrault and Glenn Fraser, Senior Vice President and National Leader for Private Enterprise at MNP. Here are the key takeaways from their discussion:

Inflation seems under control – for now

Jean-François highlighted the current economic landscape, noting that while interest rates are on a downward trend, uncertainty remains high. "Interest rate cuts in Canada and elsewhere are designed to stimulate growth. So, in principle, we are in the early stages of an expansion cycle," Perrault explained.

The economists at Scotiabank are predicting that interest rates will settle at three percent, but Perrault also pointed out the added uncertainty due to U.S. President-elect Donald Trump’s proposed policies.

Fluid tax policy is creating uncertainty for business leaders

What’s on the mind of business owners right now? In his conversations with clients, Glenn is hearing about the uncertain nature of tax policy in Canada.

"We have a very fluid, constantly changing, tax policy. And in the last several years, it's become increasingly complex," Glenn said. “Our clients are having a hard time developing plans for their business and executing their strategy.”

He advised business leaders to stay informed about tax policy developments and work closely with advisors to navigate these changes and optimize their tax strategies.  

The recent GST/HST adjustments were cited as an example of unexpected changes that can significantly impact businesses. Read more: The hidden cost of uncertainty in Canada’s tax system

Can businesses continue to pass along inflation costs?

Businesses have been trying to manage cost increases in a period of high inflation. One strategy to offset cost increases is to pass those increases along to consumers, where possible.

“Historically, during low-inflation periods, our clients had pushback on raising prices. But now, businesses have found a lot less resistance because the market seems resigned to inflation,” Glenn said.

This strategy can work when business leaders are connected to their consumers and have a sound understanding of their cost structure.

Jean-François noted that wage growth is a driving factor behind those increased costs and still outpacing the Bank of Canada's target inflation rate.

“Wage growth in Canada is still in the four percent to five percent range. Wages can't go at five percent forever, so we expect a moderation in wage growth, which would be helpful for businesses to some extent,” Jean-François explained.

Both Glenn and Jean-François cautioned that businesses need to be careful about passing on cost increases to consumers, as the market could be reaching a tipping point where consumers are no longer able to willing to tolerate increases. Effective cost management and strategic pricing will be crucial in maintaining profitability.

What are Canada’s priorities for the next 12 months?

While Canada’s economy is facing several challenges, Jean-François focused on one key issue:

“The number one challenge we have in Canada is productivity,” Jean-François explained. “To me, that is the number one public policy issue. You fix that, and you can fix the housing issue, the cost-of-living issue, and the competitiveness issue.”

Jean-François acknowledges productivity is a difficult problem to solve, but one of the key issues is a lack of investment from businesses — especially, according to Glenn, in technology and AI.

"Companies that embrace technology, that embrace artificial intelligence and incorporate that into their business model, will stand at a greater advantage than those that don't," he said.

Sorting through the U.S. election impacts

The election of Donald Trump has created significant economic uncertainty in both the U.S. and Canada.

Jean-François warned of the possible implications of U.S. tariff policies and corporate tax cuts on Canadian businesses.

“Trump has made it clear that he’s thinking about putting tariffs on everything going into the U.S.,” Jean-François explained.

A significant tariff policy would likely lead to higher inflation in the U.S. and create new challenges for an economy that weathered the post-COVID storm well.

The other looming question: What will Trump do about corporate tax rates?

"If the U.S. significantly lowers corporate tax rates, it could cause a bit of damage, as we've always maintained an advantage or at least been on par with the U.S. when it comes to corporate taxes," he explained.

More clients are talking to Glenn about establishing a footprint in the U.S. to mitigate risks and be prepared to take advantage of opportunities in the American market. But it’s a significant decision and business leaders need to consider the full range of potential impacts to their business before acting.

Looking ahead: Fostering entrepreneurism in Canada

Canada’s economy faces significant uncertainties, but one thing is clear: the country needs more to foster more entrepreneurship.

Data from Statistics Canada shows small business closures are outpacing new business starts.

Glenn highlights a combination of factors driving that trend: higher interest rates, fluid tax policy, and a generally uncertain economy.

"We need to push entrepreneurism, celebrate that a bit more and encourage the next generation to seek out opportunities to be entrepreneurs in Canada," he said. Greater government support and reducing red tape are two essential factors to encourage new business ideas and drive innovation and economic growth.

Prepare your business for what’s next

Uncertainty was a throughline of this conversation, and no one can predict the future. By staying informed, embracing innovation, and strategically managing costs and risks, you can position yourself for success in today’s landscape. MNP is here to support you with advice and tailored solutions to help your business thrive.

To learn more, contact a local business advisor.