Canada’s small business confidence gains in June; Brexit likely to have impact little over it

Canada’s small business confidence continued to gain its upward momentum in June with the CFIB business barometer rising 1.8 point to 60, following a small pause in May.

Even if the index is low compared to the usual level that is witnessed at this time of the year, it is at the highest level seen in one year. However, even if small business confidence has recovered in the second quarter, pace of economic growth is likely to be sluggish due to the wildfires and production shutdowns.

Nonetheless, a likely rebound of economic growth in the second half of 2016 should benefit small businesses. But developments post Brexit vote have raised concerns if the sentiment will continue to improve, noted TD Economics in a research report.

Canada has restricted direct trade linkages with the UK. Thus the risk for small and medium-sized business that tends to be mainly domestically-oriented is quite smaller.

Actually, just over one in 10 SMEs export. Thus the direct impacts are quite limited, according to TD Economics. The impacts of Brexit are likely to come via indirect channels, which is through the US.

Meanwhile, business and consumer sentiment is expected to be affected in the near-term by the uncertainty that will prevail in markets. Views surrounding the looming changes related to the Canada Pension Plan might also add to the dull mood amongst small business owners.

The CFIB data released on Thursday showed the improvements in sentiment were broad-based. Out of 13 sectors, 10 recorded an improvement. Agricultural sector registered the largest gains, where the index rose 10.5 points to 62.5. Meanwhile, sentiment in construction, hospitality and professional and business services dropped for the second straight month.

Region-wise also, the gains in sentiment were widespread. Confidence rose in seven out of 10 provinces. Saskatchewan, New Brunswick and Alberta provinces recorded the highest gains. This is mostly because of considerable increase in oil price. However, sentiment declined slightly in Ontario, Prince Edward Island and Nova Scotia.