Decline marks largest fall since the pandemic
In June, the number of active Canadian businesses saw its largest decline since the COVID-19 pandemic. According to a report from Statistics Canada released on Thursday, around 5% of firms closed that month – the highest closure rate since June 2020. The report also noted that firm creation did not offset the closures, with new businesses representing only 4.2% of total firms, the lowest rate since March 2023.
This was mainly due to fewer businesses reopening, with only 2.6% of previously active firms resuming operations in June, the lowest reopening rate in over a year. Combined, the number of active businesses fell 1% to 923,173, the biggest decrease since May 2020.
The data shows that Canadian businesses are struggling under the weight of rising interest rates, which are pushing up financing costs as consumer demands slow.
However, some decline may be due to the repayment deadlines for federal pandemic support loans, like the Canada Emergency Business Account (CEBA). CEBA provided over C$49 billion ($36.4 billion) in loans during the pandemic, and while some loans were forgivable, the repayment deadline was extended multiple times, with the final deadline to qualify for forgiveness passing at the end of March.
Repayment pressures could have contributed to the rise in closures, as business insolvencies spiked at the start of 2024 after staying low during the loan period.
“It’s only a month of data, so it’s hard to tell if it’s a one-off or a new trend,” said Charles St-Arnaud, chief economist at Alberta Central. “I would be more concerned if we were to see a big drop in new businesses.”
It’s possible that the closures are related to the repayment of federal loans, at least for some businesses, St-Arnaud said. “The only thing we can say with certainty is that a much smaller number of businesses that closed during the previous months reopened in June.”
Canada's economy is still weak, with consumption spending slowing despite population growth. The unemployment rate also unexpectedly rose to 6.6% in August, the highest level outside the pandemic since 2017, and an increase of 1.6 percentage points since early 2023.
The agency also noted that the drop in business openings in June was widespread across sectors, with construction accounting for one-fifth of the decline. Health care, social assistance, accommodation, and food services also contributed to the downturn.
Additionally, the Canadian Federation of Independent Business reported on Thursday that small business optimism dropped in September, with only 12% of firms planning to hire in the short term.
