A series of interest-rate hikes over the past year have certainly made headlines, as the Bank of Canada continued attempts to cool an inflation rate not seen in 40 years. We’ve heard a lot about the effect on household mortgages and credit cards, and now businesses—who already report rising inflation as their top obstacle—are feeling the effects of these hikes.
In the first quarter of 2023, about 7 in 10 (69.3%) businesses across all industries expected to be affected in at least one way by increased interest rates over the next 12 months—as will their staff and customers.
Over 1 in 10 (11.0%) businesses expected that increased interest rates will affect staffing, by decreasing the number of employees. Over one-fifth (21.9%) of businesses expected to delay hiring due to the rate hikes.
Close to half (45.7%) of businesses expected to increase the selling price of goods or services offered due to the higher rates, while over 3 in 10 (31.1%) expected to reduce investment because of the increase. A little over another 3 in 10 (30.7%) did not have any expectations regarding increased interest rates.
Expectations by sector
About 6 in 10 (60.4%) businesses in accommodation and food services expected to increase prices of goods and services, highest among sectors, and followed closely by manufacturing (58.2%) and retail trade (57.7%).
Close to one-fifth of businesses (17.7%) in accommodation and food services expected to decrease the number of employees due to higher rates, followed by 15.6% of businesses in real estate and rental and leasing, and 13.7% of those in retail trade.
Over 4 in 10 (41.5%) businesses in agriculture, forestry, fishing and hunting expected to reduce investment, highest among all sectors and followed by those in transportation and warehousing (37.2%), and mining, quarrying, and oil and gas extraction (37.1%).
Smallest businesses likeliest to keep staff
Among businesses with one to four employees, 7.5% of them expected to decrease staff due to increased interest rates, a rate less than half the one seen among businesses who employed 5 to 19 staff (15.6%). About 1 in 10 (10.2%) businesses with 100 or more employees expected to reduce staff due to increased interest rates, while 14.8% of those employing 20 to 99 expected to reduce staff numbers.
About one-fifth of those with 1 to 4 (20.6%) and 20 to 99 (19.5%) employees on staff expected to delay hiring due to rate hikes, compared with nearly one-quarter of those with 5 to 19 (24.7%) and 100 or more (22.3%) employees on the payroll.
Businesses with one to four employees were less likely to increase the selling price of goods and services (41.7%), compared with businesses with 5 to 19 employees (50.8%) and 20 to 99 employees (50.9%). Those with 100 or more on staff (39.3%) were least likely to increase prices, just behind their smallest counterparts.
Newest businesses most likely to reduce staff, least likely to increase prices
In 2023, one-fifth (20.4%) of businesses that are two years old or less expected to reduce staff due to increased interest rates, more than twice as likely as those 3 to 10 years old (9.4%) and more than 20 years old (10.0%). More than 1 in 10 (12.2%) businesses 11 to 20 years old expected to reduce staff.
Conversely, businesses two years old or less were the least likely to expect to increase prices of goods and services (35.8%), compared to about half (49.1%) of those 3 to 10 years old, 44.9% of those 11 to 20 years old, and 44.6% of businesses more than 20 years old.
Debt, credit and loans
Amid an environment of increased interest rates, 7 in 10 (70.4%) of businesses economy-wide in the first quarter of 2023 did not plan to apply for a new business loan in the next 12 months. Plans were unknown for another 2 in 10 (20.3%), while just under 1 in 10 (9.3%) planned to apply for one.
Among businesses that did not plan to apply for a new loan in the next 12 months, over one-quarter (26.4%) of them reported that they could not take on more debt over the next three months—such as a new line of credit, or a new non-residential mortgage (or re-financing of an existing one).
Of those businesses, more than half (52.9%) said that interest rates were unfavourable. That proportion rose to nearly two-thirds of businesses in retail trade (64.5%), wholesale trade (63.8%), professional, scientific and technical services (63.5%), and accommodation and food services (62.2%).
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