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Canadian Businesses On Life Support

Steve Saretsky -

To get a sense of what the economic outlook and the subsequent recovery will look like, we really have to focus on the businesses. I understand these are difficult times and it is best to try and stay positive. However, from a financial management standpoint we must hope for the best and prepare for the worst.

Recent surveys, which I always take with a grain of salt, point to a rather grim outlook for small business. Per data from CFIB (Canadian Federation of Independent Business), a survey from over 10,000 small business across Canada suggests 6% of businesses will fail by end of May. Another 44% say they are unsure if they will survive if this persists past May, while 50% say they will be absolutely fine. These small businesses have lost an average of $203,000 and a significant portion of them are dipping into personal savings or using their credit card to stay afloat.

Remember, the economy was not designed to be shut down. Nowhere in any business model does it say you should plan for revenues to go to zero for several months. Furthermore, corporations and households where levered to record highs coming into this exogenous shock.

Business and household debt Canada
Source: Desjardins

When revenues are slashed, this makes debt servicing very difficult. Our top three most levered sectors are Real Estate, Oil & Gas, and Construction- in that specific order. All three of which are facing significant headwinds.

Source: Desjardins

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The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

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The Saretsky Report. December 2022