2018 Ontario Economic Report – Key Points for Business

Business Confidence Survey

  • Last year, 62 percent of Ontario businesses reported confidence in their own organization’s economic outlook. This year, the OCC has observed a significant drop in that confidence, to 54 percent. This decline puts organizational confidence at its lowest point since we began measuring in 2012.
  • This year, 48 percent of businesses are not confident on Ontario’s economic outlook, a drop from 41 percent last year.
    • In 2018, only 23 percent of businesses are confident in the Ontario economy.
  • Economic policy from government was cited as the number one reason businesses lacked confidence in the economy. This is followed by the high price of input costs (i.e. raw materials and electricity), high business tax rates and a high level of provincial debt.
    • More than half (53 percent) also indicate that overregulation of the economy is cause for concern.
    • Large companies are more likely to cite economic policy as driving their low confidence.
  • Among those who are confident in the economy, 43 percent cite recent economic growth projections and 35 percent cite population growth projections as reasons they are confident.
  • The “Confidence Gap” is the relationship between how businesses view the economic outlook of their own organizations versus the outlook of the broader economy. In 2017 the gap was 38 points, with businesses indicating stronger confidence in their organizational outlook than Ontario’s. In 2018, the gap has narrowed to 31 points due to a dramatic decline in organizational confidence.
  • The decline in organizational confidence is largely due to the rising cost of doing business, not increased competition. Sixty-three percent of Ontario businesses cite increasing costs as the reasons for their lack of confidence in their organization’s outlook (i.e. high costs of raw materials, electricity, increasing minimum wage), compared to only 31 percent who cite competitive barriers (i.e. other market players, declining consumer demand of changing client behaviour).
    • 68 percent of businesses predict the minimum wage increase will have a negative impact on their business.
    • 43 percent continue to struggle with hiring or retaining staff (a particularly acute problem for medium-sized businesses).
  • Ontario businesses are significantly more likely to project a decrease in revenue for 2018 than they were in 2017. As well, businesses are more likely this year to report a decrease in their workforce over the last six months. More than half of businesses predict their workforce numbers will remain steady, indicating poor job growth in 2018.
  • What do Ontario businesses see as critical to their organization’s ability to thrive? The ability to attract and retain talent remains of top importance, followed by the ability to navigate regulation and red tape, and the price of electricity.

Business Prosperity Index

The Business Prosperity Index (BPI) is an original measure of business prosperity in Ontario, exclusive to the Ontario Economic Report. The BPI is a measure of excess resources available to a business after a years’ operation. It is designed to be consistent with data used by Statistics Canada to calculate GDP, with the goal of providing a better understanding of business conditions and decisions in Ontario than what is offered by GDP alone.

The BPI is measured by a percentage; a business with a lower percentage would generally run on finer margins of error with lower liquidity and at more risk. A business with a higher BPI would have a significant buffer between their production risks and their ability to respond to the changing business conditions.

  • The current BPI level for all Ontario businesses stands at 56.4 percent, which indicates a 4.6 percent increase from the previous year and the highest in more than 20 years.
  • A BPI of 56.4 percent suggests that Ontario businesses are relatively more prosperous than compared to historical levels. On the surface, this is positive, as businesses have more resources available to them to respond to changing business conditions and to reinvest into their businesses.
    • However, the production of goods and services has been responsible for an ever-decreasing contribution to the BPI – in 2017, production activities will represent only 15.3 percent of business prosperity. The current high BPI is not an indication of production prosperity, but rather of financial activities such as the accumulation of asset revaluations and the consistently favourable credit environment.
    • Business prosperity is therefore increasingly becoming more dependent upon financial activities. This is resulting in a deteriorating contribution of non-financial businesses to Ontario’s GDP.
    • A hesitation by business to grow or invest in the face of growing financial resources indicates that Ontario possesses a higher risk operating environment.

2018 Economic Outlook

  • In 2018, we expect to see a stagnation in the Ontario economy.
  • The Consumer Price Index is predicted to increase to 2.2 percent (from 1.7 percent in 2017), reflecting a rise in the price of market goods and services.
  • GDP growth will slow to 2.4 percent, compared to 2.8 percent in 2017.
  • Net migration is also expected to decrease to 185,000 from 190,000 in 2017.
  • Ontario’s unemployment rate will continue its downward trend, dropping -0.7 points over 2017 to 5.3 percent.