TD Bank says profits across a number of industries have fallen in five of the past six quarters, which is weighing on economic growth and job creation across the country.
“Any way you slice it, corporate Canada is in a slump,” writes economist Leslie Preston.
“The recent decline in corporate profits both in level terms and relative to GDP is the worst outside of a recession since the tech bubble burst.”
Profits are 16 per cent below their peak in late 2011, the report says, dragged down by manufacturing and resources.
That’s despite gains in sectors such as financial services, construction and real estate.
“This decline is not as bad as during the last recession, but it is approaching the performance Canadian firms saw during the U.S. downturn in 2000-2001,” says Preston.
The report comes a week after the Bank of Canada cut its growth and inflation estimates and dropped its warning that interest rates may have to rise in the near future.
The bank also said Canadian exports were disappointing, impacted by a strong Canadian dollar.
Industries that do business within Canada are performing a little better, but are still dragging compared to before the recent recession.
The biggest drop in profit has coming from the resources sector, which includes mining, oil and gas, fishing and forestry, where profits have sank by about 30 per cent in the past six quarters.
Mining has been hardest hit. Mining company profits have plummeted alongside a steep drop in prices of gold, silver, copper, coal and other key commodities.
The manufacturing sector fell by almost 14 per cent in the past six quarters due to higher costs for labour and raw materials, as well as increased competition, .
Still, there is hope on the horizon, TD says.
Stronger economic growth in the U.S. and a depreciating loonie should help Canadian exporters and manufacturers better compete and bounce back in the coming quarters.
The bank is also predicting a slight pickup in commodity prices, but not to the same record levels seen in early 2011 and just before the 2008-09 recession.
“These forces should help corporate profits stage a modest rebound in the coming quarters,” says Preston in the report.
“Echoing the forecast for growth in the economy as a whole, Corporate Canada should see better days ahead, but not a return to the heydays seen prior to the recession.”