CEOs expect a ‘mild and short’ recession

KPMG’s Canadian CEO Outlook and new SMB Survey show business
leaders are taking steps to prepare for continued turbulence

7 min read

On the horizon
There is much uncertainty about the economy these days – from
inflation concerns to rising interest rates to skills gaps to regulatory
changes.
The findings from our latest surveys of Canadian business leaders
reflect these concerns with most expecting the country to fall into
recession in the next 12 months. However, the majority expect it will be
mild and short and have already taken steps to ride out the upcoming
turbulence.
In fact, beyond the near-term challenges, business leaders are quite
bullish on the fundamentals for the Canadian economy over the next
three years. Nearly all (96%) Canadian CEOs surveyed in KPMG
International’s annual CEO Outlook Report expressed confidence in the
growth prospects for their company, industry and the Canadian
economy.
In similar, new research with the leaders of 503 small-and-medium-sized
businesses (SMB), more than eight in 10 (83%) said they believe their
businesses will grow over the next three years.
This level of confidence is born out in their projections for earnings and
employee growth. More than a third of Canadian CEOs (37%) polled in
our global survey expect annual earnings to climb by 2.5% or higher per
annum over the next three years. SMB leaders are even more
optimistic, with almost three in five (59%) expecting revenue to jump
2.5-10% a year.
To help deliver on this growth, organizations of all sizes plan to increase
hiring once they get through the short-term period of turbulence. Nine-in-
ten CEOs at large Canadian corporations (89%) expect to increase their
employee base in the next three years with nearly four in 10 (38%)
calling for growth of six% or more.
Eight-in-ten SMB leaders (77%) also plan to grow with three-quarters
(75%) expecting growth to exceed 6% – and 22% anticipating an
increase of at least 11%.
All of this bodes well for medium-term strength of the economy and
echoes confidence in their ability to grow earnings.

67% of Canadian CEOs are This optimism reflects the actions

expecting high M&A activity, an
increase of 11% over last year
and 20% higher than global
organizations have already taken to
prepare for an anticipated
recession. Nearly three-quarters of
Canadian CEOs (71%) have
already adjusted their strategies to
focus on boosting productivity. Half
 (51%) have already been
managing costs by increasing
prices and nearly the same number
(48%) are reducing profit margins.
Over 80% of SMBs have identified,
or are identifying and eliminating,
inefficiencies and unnecessary
complexity in their operating
models. This fundamental step –
while essential for recession
proofing – is best practice at any
time, helping to expose gaps or
vulnerabilities and honing the
organization’s competitive edge.
The realities of the past two-and-a-
half years have seen organizations
increase automation, which has
improved efficiencies and freed up
the ability of employees to deliver
more impactful work.
To prepare for a potential recession
– and considering COVID-related
supply chain disruptions as well as
geopolitical risks - two in five CEOs
and SMBs have already diversified
their supply chain, to create better
price and delivery certainty.
In our global survey, Canadian
CEOs expressed the biggest
appetite (67%) for high impact M&A
transactions to drive growth. This
was up 11% over last year and a
full 20% higher than their global
counterparts.
While most Canadian CEOs have put in place good fundamentals to
navigate recession headwinds and drive growth, challenges remain
requiring leaders to be vigilant in assessing risks and opportunities.
Nearly a quarter of CEOs state that inflation-proofing capital (24%) and
input costs and advancing digitization and connectivity across the
business (23%) are their top operational priorities to achieve growth.

A scarcity of skilled talent

Talent risk once again made the list as a threat to growth for the CEOs
of the largest Canadian organizations after falling off the list last year
and ranking in their top three concerns two years ago.
While all segments of Canadian business indicated plans to increase
headcount, finding those employees with the needed skills to drive
growth may be a challenge, especially for SMBs. Sixty percent of CEOs
and 56% of SMBs say they lack the people skills to manage the
strategic and operational rollout to transform their business.

As many as two-thirds of SMBs say 63% of SMBs are having a hard

that they are already having a time hiring people with the skill
difficult time hiring people with the sets needed to grow their
skill sets they need to grow their business
business and 57% are finding it
difficult to recruit “talent of the
future”, such as engineers,
developers, and data scientists.
Over half (53%) are considering
recruiting outside of Canada and as
many as 74% say Canada must
welcome more foreign tech talent
to meet business labour force
needs and become an innovation
leader.
Increased and targeted immigration
will help, though even more
aggressive levels of newcomers,
new talent models, and labour
productivity and efficiency may well
be needed to counter the emerging
‘silver tsunami’ of retiring boomers.
The dearth of specialized talent
ripples through the economy and is
also being felt on the climate
change front. When asked what the
greatest barrier is for SMBs in
Canada to achieve net-zero or
similar climate ambitions, the No. 1
hurdle: The lack of skills and
expertise to implement solutions.
Government, academia and
business need to work together to
identify the existing and emerging
skills needed so that we start to
produce the graduates and attract
the skilled immigrants needed to
drive our economy forward.
Canadian business leaders have learned much about their
organizations, their people, and their customers over the past two years.
They understand the importance of managing for today without losing
sight of the bigger picture. A short-term recession is one of many
challenges to overcome but Canadian leaders are already taking steps
to minimize the impact and come out the other side stronger.

Key actions
1. Identify and eliminate inefficiencies and unnecessary complexity in
the operating model
2. Stay the course on digital transformation to gain that much-needed
competitive edge
3. Work with government, academia, and industry associations to
identify and address labour gaps, including attracting skilled
immigrants
4. Consider partnerships or M&A to acquire key skillsets and digital
capabilities

Explore the latest insights in the CEO Outlook series

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