Small Businesses to Be Hit Hard by Recession, Says Former Budget Officer

Former parliamentary budget officer Kevin Page, seen here at a Commons finance committee on Parliament Hill on April 26, 2012. (The Canadian Press/Sean Kilpatrick)

An economic slowdown is “likely inevitable” and small businesses will be impacted significantly, a former parliamentary budget officer told the Senate banking committee on Dec. 1.

“It’s going to hurt small businesses significantly because with higher interest rates, people are not going to want to use credit,” said former budget officer Kevin Page, according to Blacklock’s Reporter.

“You can’t raise interest rates three-and-a-half percentage points this year, very dramatically, really a monetary policy shock, perhaps even another increase next year, and say it’s not going to have an impact,” said Page. “It is going to change financial conditions dramatically. It’s been very fast.”

Page is now President and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa.

The Bank of Canada’s (BoC) policy interest rate was near zero back in March and has climbed to 3.75 percent with large consecutive hikes. The BoC’s next rate announcement will take place on Dec. 7.

The central bank is wrestling to get inflation under control after the injection of fresh money into the economy during the period of COVID-19 restrictions created excess demand in a context of supply chain issues.

BoC Governor Tiff Macklem told the House of Commons finance committee on Nov. 23 that inflation would not be that high today if the bank’s stimulus had been pulled earlier.

“We should have started tightening interests rates sooner,” he said

Inflation, as measured by the Consumer Price Index (CPI), has shown some cooling off with its latest October reading of 6.9 percent. The CPI was 8.1 percent in June.

Macklem acknowledged at the committee that the economy is slowing and he said there’s a zero growth rate anticipated for three quarters, with a return to growth in the second part of 2023.

“The slowdown that is effectively being planned by the central bank to take some demand pressure out of the economy is going to hurt small business for sure,” said Page. “That is where it will hurt, and all the people who work for them.”

The report Key Small Business Statistics 2022 by Innovation Canada was released in late November and says that as of 2021, small businesses employed 8.2 million people, which is 67.7 percent of the total private labour force.

Out of the 1.21 million employer businesses in Canada, 97.9 percent are small businesses, notes Innovation Canada. It defines “small businesses” as having 1 to 99 paid employees.

Peter Wilson contributed to this report.