The Nanos Number: Canadian firms see drop in net profits

Nik Nanos digs beneath the numbers with CBC Power & Politics host Evan Solomon to get to the political, economic and social forces that shape our lives.

This week: How worried should Canadians be aboutdeep spendingcuts in the U.S. & financial woes in Europe?

Volatile markets in Europe and looming austerity measures in the U.S. are dominating the headlines and Canada should be worried, according to Nik Nanos.

Last Friday, Moody's Investors Services downgraded the U.K.'s credit rating from AAA to AA1, and now there is talk of a triple-dip recession across the Atlantic.

The falloutcould have a significant impact on Canada, Nanos said, especially when you combine the problems in the U.K. and Europe with the March 1 sequestration deadline in the United States.

That's when $85 billion US in spending cuts kick in, if a deal is not reached in Washington.

"Roll up some of the uncertainty in Europe, look at the drama of what's occuring in the United States and Canadians should take note, because there could be issues, events outside of our borders, that could have a significant impact on the economic well-being of Canada," Nanos warned.

Canadians businesses are already feeling the pinch.

New numbers released by Statistics Canada show a 28.5 per cent drop in net profits for Canadian businesses over the last year.

When you take financial institutions out of the equation, that number jumps to 36.9 per cent.

These weak numbers also signal a big political risk, Nanos said.

The drop in net revenues for Canadian business also mean less tax revenue for the government, Nanos points out.

"If this is a leading indicator that profits are down for Canadian companies, it means that the federal government is not going to have the revenue that it's been banking on in order to try and balance the books and keep Canada's fiscal house in order, " Nanos said.

As the government prepares to release its budget in March, Nanos warnedit might need to recalculate.

And as the government and opposition parties try to set the stage for the next federal election, they will want to tryto control the message on the economy.

"If there is a triple-dip [recession]and we don't know whether therewill be, but there are some worrying signalsit's going to put a significant wrinkle" in any campaign plans, Nanos said.

But the Conservatives have been able to capitalize on uncertainty in the global economy before, so they may be able to do it again, and for that reason these numbers are not necessarily good news for the opposition either, Nanos said.

Recognized as one of Canada's top research experts, Nik Nanos provides numbers-driven counsel to senior executives and major organizations. He leads the analyst team at Nanos, is a fellow of the Marketing Research and Intelligence Association, a research associate professor with SUNY (Buffalo) and a 2013 public policy scholar with the Woodrow Wilson International Center for Scholars in Washington, D.C.