After two years of sluggish growth, Canada’s economy has rebounded sharply in 2017. According to the International Monetary Fund (IMF), Canada is expected to have the fastest growing economy among the G7 countries in 2017, with real GDP growth forecasted to reach 2.5%. Strong household consumption, job growth and the continued rebound in energy and natural resources are driving the resurgent economic performance. This is reflected in GDP growth which reached its highest level since the end of the dot-com boom in 2000 at the end of Q2, 2017. Even more promising is the news that this growth has been broadly spread across most sectors of the economy. Business investment, despite modest increases in capital spending by the energy sector, is forecasted to fall overall for the fourth year in a row. Export growth also remains lacklustre amid concerns about rising protectionism in key markets.
In July, the Bank of Canada raised its key benchmark interest rate for the first time in seven years citing the improving economy, while analysts anticipate additional rate increases in 2017 and 2018. Gains in household consumption spending, which have been underpinned by an improving jobs market, low inflation and interest rates, and rising home values are expected to slow as interest rates and consumer debt levels rise. Canada’s urban housing markets, which the Organisation for Economic Co-operation and Development (OECD), among others, warned are “overheating” actually show some signs of slowing down. As a result, GDP growth is expected to fall back below 2% in 2018.
Canada’s vibrant small and medium sized enterprise (SME) sector is benefitting from the country’s strong and broad-based economic growth and a sustained low-interest rate environment that has boosted household spending. SMEs comprise nearly 99.7% of Canada’s 1.2 million businesses and employ 90% of private sector workers, according to Government of Canada statistics (December, 2015). Canadian SMEs benefit from the nation’s entrepreneurial culture, a favourable small business tax regime relative to many peer countries and a broad range of support programmes for small businesses provided by federal and provincial governments.
Within the generally favourable SME environment, regulation remains a significant burden for many small businesses. The Canadian Federation of Independent Businesses estimate that it costs Can$37.1 billion in 2014 for Canadian businesses to comply with regulation costs, with the cost to small businesses four times greater than large businesses on a cost-per-employee basis. The Canadian government has introduced several measures to reduce the regulatory burden on businesses, including a “One-for-One” rule that requires regulators to offset any new rule or regulatory cost by removing regulations or reducing administrative costs elsewhere and by introducing the “Small Business Lens,” which requires regulators to explicitly consider and seek to lessen the impact on small businesses in designing new regulations.
Geographic concentration also remains a challenge for some SMEs. Fewer than 12% of Canadian SMEs export any of their goods or services and, of those that do, the overwhelming majority are heavily reliant on the US market, potentially exposing them to less diversity in their customer base and greater risks in the current political environment.