Small business is bullish on economic outlook

Optimism surges on economic strength, but trade fears rise

Small business owners may be frustrated with proposed tax reforms from the Liberals, but their optimism about the economy is jumping. A recent survey from eBay Canada shows 70% of small and medium sized businesses say the current state of the economy is good for their business, an increase of almost a third over the previous year.

That mood parallels the performance of the economy, with gross domestic product growth in Canada the strongest in the G7. Looking ahead, the eBay survey suggests there is optimism for next year as well. 76% of retailing SMBs are bullish on 2018, a big jump from last year’s report (which asked about 2017’s prospects).

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One notable source of pessimism relates to another topic currently dominating the headlines: trade. Only 64% of businesses reported being confident in the government’s ability to negotiate trade deals that were good for the economy. And only 58% of respondents were similarly optimistic that trade pacts would be negotiated in a way that would be good for their own business. On the other hand, companies that do export actually reported a higher level of confidence on the question of trade deals than non-exporters.

All told, the study says that small and medium businesses in Canada believe that domestic sales growth will be stronger than international sales. In this context, it is noteworthy that the Canadian dollar has been on a tear since the second quarter of the year. Having bottomed in the US$73 cent range, the Loonie now sits around the US$80 cent level, which isn’t good news for retailers looking for business south of the border.

Andrea Stairs, managing director of eBay Canada says that the survey highlights the importance of the internet, exports, and specifically, internet-driven exports, for small businesses. “It has been interesting in the last two years to see that being multi-channel and particularly having an online channel is positively correlated with optimism”, she observes.

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Stairs also notes that the internet helps enterprises look past Canada’s borders in search of growth.  “What we see on our platform is that Canadian small business has a huge capacity to export, but when we look offline we see that Canadian small business is exporting at a very small level.”

Of the 502 companies that responded, 52% were classified as in the fashion, home and garden, toys and hobbies, or collectibles and arts, sectors. Toys/collectibles and collectibles/arts, for example, are pretty niche areas of the economy, yet comprised 24% (split evenly) of respondents. Fashion is a big part of the economy from a sales perspective ($42.9 billion according to StatsCan).

From a regional perspective, the survey’s geographic highlights doesn’t seem to line up with bigger picture economic data. SMBs in Atlantic Canada are reported to be the most optimistic region in 2017, having been the least optimistic one year prior. Yet according to estimates from RBC, not one of the Atlantic provinces this year is expected to match or exceed Canada’s overall economic growth rate. And it’s only expected to get worse: RBC says 2018 will see all of these provinces trail the rest of the country when it comes to GDP growth.

By the Numbers: Small Business in Canada:

  • 2% of businesses have fewer than 100 employees
  • 7 million Canadians are employed by small businesses
  • Small businesses created 77.7% of jobs between 2002 and 2012
  • 49% of firms do not survive 5 years in operation
  • 3% of small and medium enterprises requested external financing in 2014
  • 37,000 SMEs export their goods (2013 data). The majority (over 26,000) sold to one market
  • SMEs in 2013 exported $106 billion of goods vs. total exports of $420 billion
  • 7% of SMEs in 2013 were majority-owned by males, 15.7% were majority-owned by females and 19.7% were equal partnerships