Optimism fades as Canadian CEOs see lower growth, raise concerns over new USMCA trade deal
Canadian CEOs are far less optimistic than before and are increasingly concerned by the gloomy outlook both for their companies and the global economy, according to a new survey.
As much as 29% of Canadian CEOs, versus 5% previously, believe global economic growth will decline, according to PricewaterhouseCooper’s Annual Survey. Overall, 57% don’t expect the global economy to grow, compared to 43% in the previous year’s poll.
“While confidence in the year ahead hasn’t shifted drastically over last year, the long-term outlook is on shakier ground: Only 40% are very confident about revenue growth over the next three years, down from 58% in 2018,” PWC said in a report published Feb. 13th.
The reasons for the pessimism range from trade conflicts to cyber security threats and lack of policy information. However, lack of available skills topped their concerns, with 88% citing it as a key threat to their growth prospects.
Canadian CEOs have also soured on the promise of China. Only 12% of CEOs surveyed see the Asian economic giant as a growth market, compared to 53% last year. Canada and China are in the midst of a political standoff after the RCMP arrested Huawei Technologies chief financial officer Meng Wanzhou in Vancouver.
Canadian bosses also see the U.S. as slightly less lucrative, with 66% identifying their southern neighbour as a growth market, compared to 88% last year. Germany and the U.K. have also lost their shine for Canadian CEOs, with only Mexico seen as a growing market for the country’s business community.
The Canadian boardroom sentiment is in line with PWC’s global survey, which also suggests that international CEOs were less interested in China and the U.S. as key prospects for growth. Global interest in China has fallen from 33% to 24% year over year, while global interest in the U.S. has declined from 46% to 27%, according to the report.
“As Canadian CEOs increasingly look inward for growth opportunities against a tough global economic backdrop, the pressure to transform their businesses has never been greater,” says Nicolas Marcoux, CEO and senior partner at PwC Canada.
“The shift away from China and the U.S. creates a golden opportunity for Canadian businesses and governments to collaborate in order to enhance our country’s attractiveness for investment.”
Another issue on the top of the minds of CEOs is artificial intelligence, with 84% agreeing that AI will “significantly” change their business in the next five years.
Alarmingly, only four out of 10 CEOs said AI existed in the company, and a majority of them said it had limited use in their organizations.
“But Canadian CEOs also anticipate AI will disrupt the job market along with their business,” the report noted. “In fact, the availability of important skills is the single-biggest concern in this year’s survey, and 47% agree AI will displace more jobs than it creates in the long run. Closing this gap is critical to properly tackling AI.”
Half of Canadian executives say old NAFTA better for our economy than USMCA
Meanwhile, another poll released last week reveals that Corporate Canada thinks we gave up a lot to get little during the negotiations to hammer out a new trilateral trade deal with the United States and Mexico.
Half the Canadian executives surveyed for the inaugural FP500/Forum Research Business Barometer Poll say they think the original North American Free Trade Agreement was better for the Canadian economy.
“The perception is that there were a lot of concessions made to the U.S. on dairy, on drug patents and things like that,” said Lorne Bozinoff, president of Forum Research. “People are sensitive to those concessions and I don’t know that there was enough promotion of the deal’s benefits. So we gave up this, but what did we get? And I don’t think it’s enough to say it could have been a lot worse.”
The survey of 48 randomly selected executives of FP500 companies took a broad look at subjects ranging from emerging technology to the #MeToo movement and cannabis legalization. Trade, however, was a big area of concern.
A little more than half (52%) of the executives said they viewed the 24-year-old NAFTA deal as better for the economy than the new deal, branded the United States-Mexico-Canada Agreement, or USMCA, by U.S. President Donald Trump. Just 5% believed the new agreement was better for the economy, while a third of respondents viewed the two deals as the same.
Asked to evaluate just the USMCA’s effect on the Canadian economy, nearly 40% said it would be positive, while 36% believed it would be negative.
“It’s possible that what they are saying is that NAFTA is technically a better agreement than the USMCA, but, at the end of the day, it’s not going to make much difference overall,” Bozinoff said.
A range of factors, including exchange rate fluctuations, fiscal policy changes, shifting consumer preferences and offshore competition make measuring the economic value of a trade deal “a very hard thing to do,” said Robert Wolfe, professor emeritus at Queen’s University’s School of Policy Studies.
The maturity of both the U.S. market and the U.S.-Canada free-trade relationship also means any impact from a revamped deal is bound to be “incremental,” he added.
“When business looks at USMCA versus NAFTA, the real thing to consider is USMCA versus nothing,” Wolfe said. “Nothing would have real impacts on productivity and efficiency, because anything that disrupts North American supply chains can’t be good.”
Many of the new elements in the USMCA draw heavily on the Comprehensive and Progressive Trans-Pacific Partnership, the 11-country Asia-Pacific free trade deal abandoned by the Trump administration in 2016. Among the similar elements are stronger intellectual property protections, new labour and environment obligations, and rules for digital trade and e-commerce.
Some of the biggest changes were in the automotive industry, where new minimum wage and regional content requirements were established. Higher de minimis thresholds or duty free limits for online shopping, which were fought by Canadian retailers — are also part of the agreement.
“It’s a mixed bag as with any trade deal,” Wolfe said. “Some people will win, some people won’t. It doesn’t surprise me that some (executives) see it as a little better, some see it as a little worse. Because the truth is, that’s about right.”
Despite volatile negotiations in which Trump officials publicly criticized Prime Minister Justin Trudeau and the U.S. slapped tariffs on Canadian steel and aluminum, almost three quarters of executives surveyed (70%) said they saw the U.S. as a reliable trading partner, with 27% describing it as “very reliable.” About 20% said the U.S. was not reliable.
What’s more, half the executives said the amount of U.S. business they do had stayed the same over the past six months while 18% said it grew, suggesting the strained relations between Canada and the U.S. had little impact on established trade flows.
And though the federal government has renewed efforts to diversify trade, the uncertainty of the negotiations drove only 23% to look for trade opportunities outside the U.S.
“North America is a mature economy. A good portion of our businesses should be looking for diversification into higher-growth regions like Asia and increasingly Africa,” said Dan Ciuriak, a senior fellow at the Centre for International Governance Innovation.
Through rules of origin requirements and other measures, the new trade agreement is “designed to fence in activity into North America,” he said, adding that other features still favour production inside U.S. borders.
“The place to look for the impact of the new NAFTA is not in trade directly, but in investment,” Ciuriak said.
“The uncertainty about future market access into the United States promises to lower foreign direct investment aiming to serve the North American market coming to Canada.”
Source: The Financial Post