CEO survey - Increased optimism and transformation at the forefront of business strategy

Discover how Canadian CEOs defy global economic slowdown fears, embracing transformation and navigating geopolitical risks in 2024.

In brief

• Despite expectations of a continued high-inflation and low-growth environment, Canadian CEOs are demonstrating optimism for 2024 when it comes to revenue growth and profitability.
• Canadian CEOs surveyed indicate an intention to pursue business portfolio transformation in the coming year, with 40% intending to pursue accelerated transformation activities.
• Canadian CEOs plan to take strategic decisions to adjust their presence in certain markets and reconfigure supply chains. They are also confident in their expertise and ability to integrate geopolitical risks into their strategic and investment decision-making.

hile 2024 paints a picture of slow economic growth and enduring geopolitical tensions across the globe, leaders demonstrate notable resilience. Canadian CEOs are leading with ambition, heading into the new year with measured optimism and an appetite for transformation.

Canadian leaders are notably more positive about their own business performance when compared to global leaders and expect to be successful and profitable through 2024. Canadian CEOs are also looking to accelerate business portfolio transformation, driven chiefly by the influence of technology on industry dynamics. Finally, as we head into 2024, considerations of geopolitical risks are driving business strategy. 

Rising optimism heading into 2024

Canada’s economic growth stalled in 2023 as past interest rate hikes had a lagging effect on household spending and businesses activity. However, after falling to its lowest level in over a decade — barring the COVID-19-induced dip in 2020 — the Bank of Canada’s Business Outlook Survey indicator increased slightly in Q4 2023, hinting at improved business sentiments.

Findings from our quarterly survey of global CEOs show consistent results. In January 2024, 60% of Canadian leaders reported expectations of a continued economic slowdown. This is in contrast to the July 2023 survey, when nearly all CEOs reported they were bracing for a global economic slowdown.

Heading into the new year, price concerns persist among business leaders. But compared to business leaders in other countries (57%), fewer Canadian CEOs (44%) anticipate an increase in costs of inputs and costs of doing businesses in 2024. One consistent theme is that most Canadian and global leaders expect to pass on more than half, or potentially all, costs to consumers, 82% and 85%, respectively.

Such business strategies are likely to place further strain on Canadian households, where budgets are already strained in a high-inflation, high-interest rate environment. In Q4 2024, the EY Future Consumer Index revealed that Canadians are concerned about rising costs and are already planning to decrease spending on non-essential goods and services, including personal care, clothing and footwear, and vacations.¹

If leaders continue with these business strategies, it could add pressure to the ongoing inflationary environment in the Canadian economy. Further, a majority of Canadian leaders (66%) also expect “higher for longer” interest rates, with persisting inflationary conditions driving tight monetary policy. This concern is even more pronounced among CEOs in other countries, with 78% of survey respondents holding the same view.

Despite prevailing challenges, Canadian leaders are demonstrating increasing optimism regarding their own business performance. A large majority expect higher revenues (84%) and profitability (80%) in 2024, up since the October 2023 survey, from 60% and 66%, respectively.

Against past trends, Canadian CEOs are also beginning to show greater optimism compared to their global counterparts. Only 64% of CEOs elsewhere expect higher revenues, and just 63% expect greater profitability over the same timeframe.

Accelerating business transformation amid uncertainties

Despite uncertainties clouding future interest rates, a staggering 100% of Canadian CEOs plan to continue their path to business portfolio transformation, compared to 95% globally. Showcasing a bullish outlook for 2024, a notable proportion of Canadian leaders (38%) also intend to accelerate portfolio transformation, up from 12% in July 2023.

Half of Canadian CEOs identified technology impacts on industry dynamics as the top driver for rethinking the transformation agenda. Across various industries, advanced technologies such as artificial intelligence (AI) are being adopted to drive efficiencies and improve business performance. Both Canadian and global leaders report the adoption of AI technologies as one of the top three business strategies in the coming year, 38% and 41%, respectively.

At the same time, evaluating the future benefits AI can offer presents a challenge due to the uncertainties surrounding its development and the complexities inherent in quantifying its impacts on business performance. In October 2023, the majority of Canadian CEOs (78%) foresaw a significant impact on productivity and efficiency from AI in the next five years. Currently, 86% of respondents maintain the view that AI will provide efficiency benefits, despite the expected limited impact on revenue growth this year.

Despite holding the view that interest rates will remain high in the coming year, Canadian leaders are looking positively towards financing their portfolio transformation. Canadian CEOs indicate that raising new capital will be the primary way to finance their portfolio transformation, both from existing and new shareholders (34%), and through debt issuance or bank loans (34%).

Concurrently, transaction initiatives are gaining traction, with 96% of Canadian CEOs expecting to actively pursue transactions such as M&A, divestments, IPOs and joint ventures, compared to the global average of 84%. 

However, despite the optimism, CEOs remain cautious of major challenges in pursuing transaction initiatives. According to Canadian leaders, the lack of potential buyers at the required valuation is one of the top challenges preventing them from pursuing divestments. While 2024 is a year of optimism, it is marked with pragmatism due to various prevailing market risks.

Adapting business strategies to geopolitical risks

In addition to macroeconomic conditions, geopolitical risks are now taking centre stage in strategic business decisions. For Canadian CEOs, the top two business strategies in the next 12 months are adjusting their presence in certain markets due to geopolitical instability (52%) and reconfiguring supply chains, including nearshoring (42%). To maintain their business performance, Canadian leaders are looking to minimize disruptions and are seeking optimized operations. In the current global economic and geopolitical climate, flexibility in business strategy may prove to be the key to success for many businesses.

As a result of geopolitical challenges and the outlook for 2024, leaders remain flexible in their strategic decisions. CEOs in Canada and elsewhere are altering their strategic investment plans, with delays in planned investments or divestments being the top strategy, followed by cancellation of planned investments and divestments.

However, CEOs in Canada and other countries alike indicate preparedness to incorporate these risks into their decision-making. At least 96% of Canadian leaders, along with 93% of leaders elsewhere, report having some level of organizational capability in handling geopolitical risks, including monitoring, assessment and effective management of such risks.

Canadian CEOs highlight advanced and industry-leading capabilities in defined and active processes (52%), as well as clear governance frameworks (58%) for managing geopolitical risks.

The EY Global Geostrategic Outlook highlights key risks for companies heading into 2024. Topics such as AI and threats to global supply chains are expected to emerge as new issues motivating geopolitical competition and regulatory dynamics. As such, proactive decision-making will be a strategic imperative for business leaders to ensure continued success in an increasingly uncertain global geopolitical environment.