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Small-business confidence has improved somewhat this year but remains low compared to historical levels — a situation that may be slow to change given higher interest rates and expectations for muted growth.

Small-business optimism, based on survey responses from members of the Canadian Federation of Independent Business (CFIB), increased by about three points in March to reach 55.3 on CFIB’s 12-month small-business confidence index. A reading above 50 indicates that more business owners feel confident than negative about business performance in the coming months. The index’s pre-pandemic average is about 62.

While the March survey result was the fourth straight month of increased optimism, borrowing costs and product input costs remain the top constraints for businesses, CFIB said in a report. Further, business growth is limited by labour shortages and input product shortages.

In commentary, TD Economics said improvement this year in small-business confidence was in line with improvement seen in other economic indicators, such as consumer spending, job growth and consumer confidence. However, headwinds remain.

“A slower growth outlook for the Canadian and U.S. economies this year, combined with higher interest rates, will likely weigh on businesses’ investment and expansion plans,” the TD report said. “The consumer is also likely to be put under increased financial stress over 2023, which will weigh on sales and margins, ultimately affecting businesses’ bottom lines.

The monthly CFIB survey was based on 540 responses from CFIB members received from March 2 to March 14.