Quebec businesses to feel pain

[ErickMontreal]

Quebec businesses to feel pain

Our exports set to slow. But local companies well-equipped to weather storm, experts say

 

PAUL DELEAN, The Gazette

Published: 9 hours ago

 

It's shaping up to be a winter of discontent in corporate Quebec.

 

Financial upheaval in the United States, Quebec's largest trading partner, has left a lot of companies feeling pinched and dreading the prospect of a full-fledged recession if the U.S. can't resolve its banking crisis.

 

"Winter will be difficult for small and medium-size businesses that export to the U.S.," said former Caisse de Dépot et Placement executive Michel Nadeau, now director-general of the Institut sur la gouvernance d'organisations privées et publiques. "The U.S. economy is slowing. Clients there are squeezed on the credit front. They'll be buying less and wanting deals from their suppliers. And if there's no resolution of the current (bailout) impasse within the next two weeks, Quebec companies risk being being badly hurt."

 

About 80 per cent of Quebec's exports go to the United States, where the credit crunch has put the brakes on consumer spending and ready lending. Suppliers of wood, automotive, industrial and consumer products were among the first to feel the pain.

 

"For businesses selling to the U.S., it's definitely going to have an effect in terms of the revenues they can generate," said Susan Christoffersen, associate professor at McGill University's Desautels Faculty of Management. "So much of the Canadian economy is correlated with the U.S."

 

Jayson Myers, president of the Canadian Manufacturers and Exporters, said many U.S. clients have stopped paying on time, leaving Canadian suppliers "holding the bag."

 

"There's a lot of real concern (among members)," he said. "Conditions had been tightening for three or four months before all this. There was not a lot of profit margin out there to absorb all these shocks."

 

A couple of factors have helped alleviate the blow so far for Quebec businesses. Most have made adaptations in the past two years to become more productive and efficient to cope with the impact of higher commodity prices and a rapidly rising Canadian dollar.

 

And that same dollar has retreated about 15 per cent from its high, to around 94 cents (U.S.) yesterday, making Quebec exports more competitive.

 

Yvon Bolduc, president and chief executive of the Quebec Federation of Labour's Solidarity Fund, said Quebec companies are better prepared for the current crisis than they were for the one in which the Solidarity Fund was created 25 years ago.

 

"For many years, we were competitive because of the dollar. We surfed on its weakness," he said.

 

Despite the strong loonie and credit markets that were already tighter because of last year's financial debacle, asset-backed commercial paper, the private companies in which the Solidarity Fund is invested actually posted a positive return in the latest fiscal year, Bolduc said.

 

The Solidarity Fund provides companies with capital to help them expand and adapt. At a time when other lenders might be unreceptive, it can be a lifeline. Last year, it provided $730 million to 140 companies. That was $120 million more than it had budgeted, Bolduc said.

 

While exporting companies clearly are most vulnerable to a U.S. pullback, there are also signs of a spending slowdown at home as Canadian consumers grow more cautious.

 

Clothing retailers have seen flat to lower sales in recent quarters, and Canadian housing sales and prices have begun to slip.

 

The Quebec economy figures to get some ongoing lift, however, from the ambitious, multi-year infrastructure-renewal program undertaken by the Charest government.

 

"What we have experienced so far is a banking crisis, not an economic crisis," said Simon Prévost, vice-president (Quebec) of the Canadian Federation of Independent Business. "It could become an economic crisis, but we're not there yet."

 

Prévost said there was actually an increase in business confidence in Quebec in the CFIB's last survey in early September, with oil prices and the dollar both declining, and Canadian financial institutions still eager to lend.

 

"Small business owners didn't see any problems getting money from banks (at that time)," he said. "It's changed a little bit, but it's not a big deal yet."

 

In the same survey, 34 per cent of businesses reported growing demand for their products. Fewer than 10 per cent said demand was down.

 

pdelean@thegazette.canwest.com