/PG/ Toronto, Canada (Signal High) [Digest] —– A report from Better Dwelling and Statistics Canada has cast a dark cloud on Canada’s financial state.
Canada’s soaring inflation and expensive real estate are weighing on its small businesses. Statistics Canada (Stat Can) data shows a sharp drop in active businesses in June. A combination of more closures and fewer openings has wiped over a year of progress. There have been many warnings that this problem is brewing, and it’s expected to worsen in the coming years.
Canada just saw the largest downtick of active businesses operating since the pandemic. There was a 0.8% drop to 925.8k active businesses in June, about 0.4% lower than last year. It was the fewest active businesses operating since March 2022, when inflation began to scale along with interest rates rapidly.
Active businesses result from the net change in new, closing, and continuing businesses. The decline can occur due to more closures, fewer openings, or a combination. Each of these issues implies different circumstances, so diving into those numbers helps to provide more context.
Canada is seeing businesses shutter at a faster clip than usual. Closures climbed 3.5% in June to 45.5k businesses, a whopping 14.9% more than the same month last year. It was the most significant month for business closures since February 2022.
Businesses are closing at a faster rate, implying more operating pressure. That’s easy to see with soaring inflation driving input costs, primarily commercial rents.
Unfortunately, the situation gets worse—new businesses are slowing down as well. The number of new businesses fell 15.8% in June to 38.6k businesses, about 9.2% lower than last year. It was the weakest month for new business openings since May 2021, during lockdowns. The fewest business openings since people encountered regulatory pandemic barriers to restrict openings, is not a good sign.
Canada is experiencing the worst combo possible—more businesses are closing, and fewer are opening. Canada prides itself on low regulatory barriers to opening a business, but with some of the highest input costs in the world, the reality is very different. Despite a rapidly growing population, fewer business owners are finding themselves able to operate in this environment.
The direction is less than ideal but widely expected. Earlier this year, Canada’s largest bank warned that young adults are doing much worse than previous generations and can’t drive the economy in the same way. High debt loads and shelter costs make it challenging to consume and take risks like creating new businesses (and jobs).
Going even further back, the OECD warned that Canadians are too debt-focused, presenting economic challenges in the future. Since debt is borrowing future growth, the recent boom means paying back that growth for a long time. The inter-country organization sees Canada lagging behind its advanced economic peers for the next 40 years. An impressive consequence realized after just a few years of poor prioritization.
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