Credit Tightening Leads to Private Sector Cost Cutting

The Bank of Canada’s regional offices conducted summary interviews with senior managers of about 100 different firms representing a snapshot of Canada’s gross domestic product in order to gain a clear perspective of the future of economic activity in the country. 

The findings of note in the report published April 8, is what many private sector firms said: in order to protect their profit margins, cutting costs would have to be at the forefront of their action plan. Firms also reported a minor tightening in credit conditions over the last three months.

These responses indicate that the firms expect another challenging 12 months ahead. Economic uncertainty remains high, with most firms reporting a cautious outlook to hiring new employees. Recent provincial corporate tax changes further increase this risk in provinces where tax rates increased or small business deduction levels decreased.

Uncertainty remains the key word for both international and domestic economics. With interest rates remaining very low, the Bank hopes to endorse investment and growth, but firms across the country remain hesitant, and with good reason, as they grapple with the continued global economic volatility and significant profit eroders. 

This trend does not bode well for the economic growth stimulus needed to keep a fragile economy in growth mode.

For the full report, see: http://www.bankofcanada.ca/wp-content/uploads/2013/04/bos-spring2013.pdf