Some Canadian businesses are reconsidering their expansion plans after the central bank’s surprise full percentage point interest rate hike, and instead are sharpening their focus on protecting profits, analysts say.
The impact of the rising cost could be felt most by small and medium enterprises that employ over 80% of the labor force.
Record low interest rates during the pandemic encouraged companies to load up on cheap debt. With non-mortgage borrowings of non-financial corporations in Canada rising 10% to C$817 billion ($639 billion); in the first quarter of 2022 from a year ago, according to Statistics Canada. Real estate, construction and the oil and gas industry have emerged as the most leveraged sectors.
James White, Vice President of Wellmaster, an Ontario-based manufacturer of industrial pipes for the oil and gas industry; has put on hold plans to invest in a sustainable equipment plant as part of the company’s transition to a greener economy.
Economists and industry groups say other small and medium organizations are re-evaluating business plans in the wake of the sharp rise in interest rates.
“Corporate bond yields and bank borrowing rates for businesses are all going up right now.