The 40th Quarterly C-Suite Survey:Federal Election, Interest Rates, Oil Prices and Trade
September 28, 2015
Sponsored by:
Published and broadcast by:
2222
Introduction
Methodology: telephone interviews with 152 C-Suite executives fromROB1000 companies between August 24th and September 18th, 2015.
This survey quarter’s survey asked the C-Suite about:
The state of the Canadian economy Monetary and fiscal policy responses to the recession Opinion about the Federal Election: what the parties and leaders should be
discussing Attitudes to foreign markets, trade promotion & supply management
3
Key Findings
Recent C-Suite surveys signaled concern about the broader impact ofthe downturn in the oil & gas sector.
However this quarter we see a pronounced lack of confidence in theeconomy, with a 20-point drop in the number of executives who expectCanada’s economy to grow.
This is undoubtedly tied to the oil and gas sector. Far fewer thisquarter are predicting the benchmark North American price for oil willreturn to $70 or higher in the next 12 months.
Four in ten agreed that Canada is not only in a technical recession but one that will last through to the end of 2015.
Other executives – whether they agreed or disagreed that Canada is in a technical recession – are still dissatisfied with current growth rates and any economic growth will be grudging going forward.
4
Key Findings
The C-Suite thinks the economy is far and away the biggest issue thatleaders and parties should be prioritizing in this election.
There is good support for monetary or fiscal stimulus to help grow theeconomy.
Few expressed opposition to the Bank of Canada’s recent rate cut.
There is modest concern that a new government would reverse recenttax cuts.
Where there is more debate is on the question of whether the federalgovernment should exercise spending restraint with a view tobalancing the budget.
Those who take this view were more likely to favour using monetarypolicy over fiscal policy to assist the economy. However nearly half ofthe C-Suite believes restraint should not be the order of the day andthat spending on stimulus or infrastructure is in order.
5
Assessments of the Economy
Oil prices have been depressed since the beginning of 2015, yet theoutlook for Canada’s economy is worse now than it was in surveysconducted in the first two quarters of 2015.
There is no consensus as to whether Canada is in recession.
Fifty-three percent of the C-Suite believes Canada is in a recession. Most whosaid Canada is in recession agreed it will extend into 2016, but some believethe economy will rebound.
Many disagree with the premise that the contraction in Canada’s economy islimited to the oil and gas sector. However those who believe the economy isgrowing were more likely to agree the contraction is confined to oil & gas.
Most executives still expect their business will grow over the next 12 mos., butthe number has declined slightly – as many as one in five now expects theirbusiness will not grow over the next 12 mos.
The outlook is most pessimistic in Alberta and among resources/oil & gascos.; and relatively positive in Ontario.
The outlook for the US economy is far better than the outlook for Canada’s.
6666
Projections For The Canadian Economy
What are your expectations for the Canadian economy over the next 12 months, strong growth, moderate growth, moderate decline, strong decline? (% saying each)
73
1
2332
1113322211
8269
5715
5589898993
6981
7486
8888
9587
7559
6547
927
3970
42878
529
1520
1199
310
2336
3252
11
115
3
1
1
311
2
11
21
41
11
0 20 40 60 80 100
Mar. '07
Aug. '07
Jun. '08
Nov. '08
May/Jun. '09
Dec. '09
May/Jun. '10
Nov./Dec. '10
Jun. '11
Dec. '11
May/Jun. '12
Nov./Dec. '12
Jun. '13
Dec. '13
Mar. '14
Jun. '14
Oct. '14
Dec. '14
Mar. '15
Jun. '15
Sept. '15
Strong growth Moderate growth Moderate decline Strong decline DK
7777
Is Canada Currently In Recession?
53
69
42
42
41
46
61
43
31
45
55
59
52
32
4
13
3
2
7
0 20 40 60 80 100
Total
AB
BC, SK & MB
ON
Manufacturing
Services
Resources
Yes No DK/NR
Do you believe the Canadian economy is in a recession at the current time? (% saying each)
8888
Recession in Second Half of 2015
71 28 1
0 20 40 60 80 100
Total
Yes No DK/NR
Do you believe that the recession will be prolonged and extend into 2016?[Among those that believe we are currently in recession] (% saying each)
2 33 62 3
0 20 40 60 80 100
Total
Very likely Somewhat likely Unlikely DK/NR
Do you believe the Canadian economy is very likely, somewhat likely or unlikely to fall into a recession in 2015? [Asked of those who do not believe we are currently in
recession] (% saying each)
9999
Expectationsof Provincial Economies
3
3
6
5
3
44
29
71
62
50
14
47
34
34
23
34
17
43
35
18
34
17
43
15
1
17
0 20 40 60 80 100
Canada
AB
BC, SK & MB
ON
QC & Atlantic
Oil & Gas
Other Resources(Mining)
Strong Growth Moderate growth Moderate decline
Strong decline DK/NR
And what are your expectations for the economy of the province where you are located -strong growth, moderate growth, moderate decline or strong decline? (% saying each)
10101010
Expectations ofthe Canadian and US Economies
13 80
47
7
52 1
0 20 40 60 80 100
US economy
Canadianeconomy
Strong growth Moderate growth Moderate decline
Strong decline DK/NR
What are your expectations for the U.S. /Canadian economy over the next 12 months, strong growth, moderate growth, moderate decline, strong decline? (% saying each)
11111111
Contraction is Confined to Oil & Gas
42
64
23
56
35
75
2
2
1
0 20 40 60 80 100
Total
Economy isnot in
recession
Economy is inrecession
Agree Disagree DK/NR
Would you agree or disagree with the following statement? “The economic contraction in the Canadian economy is exclusively in the energy sector, while the
rest of the economy is growing.” (% saying each)
12
Growth for Businesses
Most executives with ROB1000 companies still expect their businesseswill grow. That number has declined only slightly since last quarter.
23% said their business will not grow over the next 12 mos. – up 4 pointssince last quarter.
24
8
13
39
17
6
35
34
51
48
55
49
40
53
65
56
22
42
26
8
40
29
10
1
2
2
3
6
3
12
0 20 40 60 80 100
Total
AB
BC, SK & MB
ON
Oil, Gas, Energy
Other Resources
Manufacturing
Services
Strong Growth Moderate growth Moderate decline
Strong decline Don't Know
13131313
Outlook for Business
What are your expectations for your company over the next 12 months, strong growth, moderate growth, moderate decline, strong decline? (% saying each)
14
Expectations for Oil Prices
Explaining much of the slide in opinion about the economy is the clearsense that oil prices will remain depressed into 2016.
Last quarter most executives believed the price for WTI crude would exceedUS$60 a barrel.
Now virtually none expect this, and most expect prices to stay below $50 abarrel until the end of the year:
• only 25% expect prices to exceed $50 a barrel;
• among oil & gas executives 31% expect prices to exceed $50.
The outlook is only somewhat better for 2016 – but few expect oil toreturn to prices of 2015.
Most believe prices will be below $60 in a year’s time;
17% expect prices could exceed $60 in a year.
Oil & gas executives are somewhat more likely to predict WTI oil pricesreaching $60 or $70.
15151515
Most Expect $40-$50 Price of Oil By End of 2015
27
3
57
22
8
64
4
9 1
3
0 50 100
Q3Survey
2015
Q1Survey
2015
More than $70 abarrel
Between $60 and$70
Between $50 and$60
Between $40 and$50
Less than $40 abarrel
Unsure
By the end of 2015 what do you predict will be the benchmark price for North American or West Texas Intermediate in US dollars per barrel? (% saying each)
16161616
Most Expect $50-$60 Price of Oil in One Year
And what do you predict the benchmark price for North American or West Texas Intermediate in US dollars per barrel will be one year from today? (% saying each)
4
10
13
17
53
67
22
7
5 3
0 20 40 60 80 100
Total
Oil & Gas
More than $70a barrel
Between $60and $70
Between $50and $60
Between $40and $50
Less than $40a barrel
Don't know
17
Low Oil Prices
Very few companies in any region in Canada said they stand to benefitif oil prices stay at current levels until the end of 2015:
40% said there would be no impact or a neutral impact on their business
39% said it would have a very or somewhat negative impact.
18181818
Impact if Oil Prices Stay at Current Levels Until the end of 2015
5
2
3
6
15
6
19
14
40
23
42
57
28
38
29
22
11
31
3
2
1
3
0 20 40 60 80 100
Total
AB
BC, SK & MB
ON
Very positive Somewhat positive Neutral
Somewhat negative Very negative DK/NR
Since the price of oil has dropped significantly over the past year, what would be the impact on your company if oil prices stay at current levels until the end of 2015? Would it be a
positive for your company or negative for your company or neutral? (% saying each)
19
Monetary & Fiscal Policy
Three quarters of executives support the Bank of Canada’s recent(July) cut to the prime lending rate. In our March 2015 survey onlyhalf said they supported the idea of an additional rate cut.
Support is highest among Resources sector executives, and opposition to thisis mostly not strong opposition.
There is very little difference between executives who think the country is inrecession and those who think it is growing: 72% of those who said theeconomy is growing supported the rate cut. A sign perhaps of how any growththat Canada is experiencing is likely to be moderate growth.
20202020
Solid Support for BoC Rate Change
34
24
28
42
42
42
43
42
15
29
16
11
7
6
11
3
2
2
3
0 20 40 60 80 100
Total
Manufacturing
Services
Resources
Strongly support Somewhat support Somewhat oppose
Strongly oppose Don't know
In July, the Bank of Canada lowered the interest rate by quarter percentage point. Do you strongly support, somewhat support, somewhat oppose or strongly oppose this move by the
Bank?
21212121
Positive Impacts of BoC Rate Change
48
20
13
13
9
7
5
4
0 20 40 60
Help stimulate the economy
Encourages capitalinvestments, co. growth
Lower cost of borrowing
Economic conditions warrantit, fiscally prudent
Necessary due to commodities
In line w foreign exchange,lending and inflation
Boosts manfacturing
Helps people spend more
% saying each
Why do you support the Bank’s rate cut? (Open ended, multiple mentions) Among those who support rate change; n=116
Encourages exports: 2%No response: 1%
22222222
Negative Impacts of BoC Rate Change
33
33
27
24
12
0 10 20 30 40
Not effective long term
Devalues dollar
Encourages high debtlevels, hurts savers
Real estate bubble
Discouragesinvestment/saving
% saying each
What most concerns you about a rate cut? (Open ended, multiple mentions) Among those who oppose rate change; n=33
Other mentions include:
Negative impacts on pensioners: 6%
Negative impacts on financial/banking industry: 6%
23
Monetary & Fiscal Policy
Executives tend to believe fiscal stimulus would be more effective atboosting the economy than monetary policy measures.
In a forced choice, 37% said monetary policy would be more effective, while49% said fiscal policy would be more effective.
In Ontario, Quebec and Atlantic Canada there is a strong preference for fiscalpolicy measures such as infrastructure.
Those who favour fiscal restraint (rather than fiscal stimulus) tend to believemonetary policy is more effective than fiscal policy measures when it comesto boosting the economy.
Respondents were split on whether the federal government shouldrestrain spending to run a balance budget or stimulating the economy.
In a forced choice: roughly half said government should restrain spending toensure a balanced budget; and half said the government should stimulate theeconomy instead.
One third of executives said spending restraint to maintain a balancedbudget should be a high priority, down from 53% saying so in oursurvey in the first quarter of 2015.
24242424
Fiscal Stimulus Preferred to Monetary Stimulus
49
50
48
42
58
31
66
10
11
6
6
13
4
13
37
34
41
46
27
57
20
3
3
5
4
3
5
1
2
1
2
3
0 20 40 60 80 100
Total
Recession
No Recession
West
Rest of Canada
Restain spending
Stimuate economy
Fiscal stimulus, such as capital investments in infrastructure
Both (Accepted but not offered)
Monetary stimulus in the form of the recent rate cuts announcement
Neither (Accepted but not offered)
DK/NR (Accepted but not offered)
Which would have been more effective at boosting the Canadian economy? (% saying each)
25252525
Should the government restrain spending or stimulate the economy?
48
40
56
54
41
46
53
41
38
55
6
8
3
8
4
0 20 40 60 80 100
Total
Recession
No Recession
West
Rest of Canada
Restraining spending to ensure a balanced budgetStimulating the economyDK/NR
Do you think the federal government should focus on ...(% saying each)
26262626
Prioritizing a Balanced Budget
34
53
57
42
9
5
0 20 40 60 80 100
Maintain a balancedbudget - Q3 2015
Balancing the budget - Q12015
High budget priority Modest budget priority Not included
Thinking of the next federal budget would you say that spending restraint to maintain a balanced budget should be: (% saying each)
27
The Federal Election
Most executives said that the economy is the most important issue thatleaders and parties should be discussing in this election.
When asked what issues leaders and parties are not discussing weheard a range of issues.
No single issue such as the economy predominates, suggesting that theeconomy has been an important focus of debate so far.
Among the issues mentioned are employment and labour market concerns(as well as education), the environment, health care, defense, and issuesrelating to Aboriginal land and agreements.
28282828
The Economy is Most Important Issue in Federal Election
53
14
9
0 10 20 30 40 50 60
Economy (generalmention)
Economicgrowth/stimulus
Responsible fiscalspending
% saying each
What issue should be the most important issue that leaders and parties should be discussing in this election? (Open ended)
Other mentions include:
Energy: 3%Economy – employment/ job creation: 3%Economic diversification: 2%Economy – debt/deficit: 2%Immigration: 2%Infrastructure: 2%Good leadership: 2%Tax reform: 2%Don’t know/ No response: 3%
29292929
Economy Most Pressing Issue for New Government
59
14
0 20 40 60 80
Economy (handling therecession, growth)
Energy industrydownturn
% saying each
Regardless of which party is elected to form government, what is the single most pressing issue that the new government will face? (Open ended, multiple mentions)
Other mentions include:
Demographics/aging population: 3%Infrastructure: 3%Good Leadership: 2%Other: 3%Don’t know/ No response: 2%
30303030
The Economy is Most Important Issue in Federal Election
13
7
5
4
4
4
4
0 5 10 15
Sustainable economicdevelopment
Environmental/ climatechange policy
Meaningful debate
Youth and long term jobcreation, skills deveopment
Healthcare
Security, defense
First Nations issues
% saying each
Based on what you know or have read or heard, what is the most important issue that is not being discussed enough by the political parties and their leaders in this election?
(Open ended, multiple mentions)
Other mentions include:
Free trade: 3%Responsible spending: 3%Efficiency, size of government: 3%Leadership/ good governance: 3%Immigration: 3%Education: 3%Innovation: 3%National Energy Strategy: 2%Transfer payments: 2%Tax policy reform: 1%Population aging: 1%Labour market issues: 1%Don’t know/ No response: 26%
31
The Federal Election
When it comes to the interests of their companies, executives said theywould like to see political parties prioritize:
Lower taxes
Stimulus to address the downturn
A balanced budget
and simplifying regulations.
In terms of what they personally would like to hear the partiesprioritize:
Many raised taxes – either reductions or that recent reductions should bekept in place (e.g. no increases, no cancelling of income splitting, TFSA’s)
Also important: jobs and the economy, responsible government spending,climate change/environment.
32323232
Policy Priorities for Companies
24
18
13
11
9
9
9
7
7
5
5
5
0 10 20 30
Taxation: Reduced/incentives
Addressing economy
Less regulation
Balancing budget
Stimulate/ more investment for ourindustry
Access/ support for oil & gas getting tomarket
Job creation/ growth
Reduce trade barriers
Energy plan
Environment
Support for business
Infrastructure
% saying each
Thinking specifically of your company, what policies would you like to see political parties prioritizing as they lay out platforms and policy? (Open ended, multiple mentions)
Other mentions include:
Dollar, interest rates, market prices: 3%Healthcare: 1%Support for science and technology: 3%Reconsider transfer payments program: 1%Aging population: 1%Other: 3%Don’t know: 1%
33333333
Personal Policy Priorities for Executives
26
13
12
11
8
8
7
4
0 10 20 30
Taxes/Stable tax rates
Balancing budget
Economic growth
Job creation
Healthcare
Immigration
Climate change/environment
Energy plan
% saying each
And now thinking not about your company but your own personal concerns or perspective, are there other policies you would like to see political parties prioritizing as they lay out
platforms and policy? (Open ended, multiple mentions)
Other mentions include:
Infrastructure: 3%Transportation/ transit infrastructure: 3%Investments in R&D: 3%Defense/ security: 3%Improved relationships with First Nations: 3%Foreign policy: 3%Housing: 2%Homelessness and poverty: 2%Education: 3%Household debt: 2%
34
Expectations for The Canadian Dollar Valuation
The overwhelming majority of the C-suite expects the value of theCanadian dollar to remain at between 70 and 80 cents US through tothe end of the year.
When asked what Canadian dollar valuation would be optimal forexecutives’ companies and the economy, most hoped for a valuationhigher than 80 cents US.
Only 31% believe a dollar priced at less than 80 cents US is good for theircompanies
38% would welcome a valuation at between 80 cents and par.
Only 20% believe the Canadian economy benefits from a dollar priced atbelow 80 cents US.
35353535
Vast Majority Expect Canadian Dollar Value of Less than 80 cents USD
By the end of 2015 what do you predict will be the value of the Canadian dollar in US dollars or US cents? (% saying each)
3 13 81 21
0 20 40 60 80 100
Total
>$1 $.90-.99 $.80-.89 $.70-.79 <$.69 #REF!
36363636
Ideal Dollar Value
18 11 27 26 5 12
0 20 40 60 80 100
Total
>$1 $.90-.99 $.80-.89 $.70-.79 <$.69 N/A
“Thinking now about the Canadian economy, what would be the optimal value of the Canadian dollar against the US dollar?” (% saying each)
16 10 51 20 22
0 20 40 60 80 100
Total
>$1 $.90-.99 $.80-.89 $.70-.79 <$.69 DK or N/A
“Thinking specifically of your company, what would be the optimal value of the Canadian dollar against the US dollar?” (% saying each)
37
Trade Prioritization
Executives were nearly unanimous in saying the US should be a toppriority for Canada when it comes to opening up two-way trade andinvestment.
Half said that the EU and China should be top priorities.
In 2014 two in three executives surveyed said China should be a top priority,meaning we see a 15% drop in interest now compared to last year whenassessing China as a priority for expanded Canadian trade.
Mexico and India are the next highest priorities for the C-Suite with aboutfour in ten saying they should be top priorities.
Somewhat fewer now, compared to past surveys would prioritize Brazil(-15%) and Korea (-14%).
A key issue in trade talks is farming quotas, which most oppose:
54% oppose the continuation of supply management in Canada.
39% support supply mgt. However strong opposition is much stronger thanstrong support.
There is majority support in each region
38383838
Priority Overseas Markets
83
54
51
45
34
24
18
13
39
39
43
51
49
49
3
5
8
9
14
22
30
1
1
1
2
1
5
3
0 20 40 60 80 100
United States
European Union
China
India
Mexico
Korea
Brazil
Top priority Moderate priority Low priority DK
I’d like you to tell me how much of a priority Canada should place on opening up two-way trade and investment with specific markets. Should opening up trade with ______ be a top priority, a moderate priority, or
low priority? (% saying each)
top priority % changesince ’14
top priority % changesince ’13
N/A N/A
+1% +19%
-15% -25%
-1% -10%
N/A N/A
-14% -6%
-15% N/A
39393939
Supply Management
9 30 24 30 8Total
Strongly support Somewhat support Somewhat oppose
Strongly oppose DK/NR
Do you support or oppose the continuation of supply management in Canada? This is the policy that controls the price of agricultural products and agrifood through marketing
boards and limits imports with tariffs. (if support/oppose) Would that be: (% saying each)