(Bloomberg) -- The number of active Canadian businesses fell by the most since the Covid-19 pandemic in June.
About 5% of firms closed their doors that month, according to a report released Thursday by Statistics Canada. That’s the highest closure rate since the same month in 2020, the agency said.
The data also shows the decreases weren’t offset by firm creation — the number of firms opening that month represented 4.2% of the number of businesses in the country, the lowest opening rate since March 2023.
That was driven by fewer firms reopening their businesses — just 2.6% of firms that were active during a previous month resumed activity in June, the lowest in more than a year.
Combined, the number of active businesses in the country fell 1% in June to 929,173, the biggest monthly decrease since May 2020, when firms were shuttered to control the spread of Covid-19.
The data add to evidence Canada’s businesses continue to feel the weight of high interest rates that are adding to financing costs as consumer demand slows.
Still, the figures may be impacted by the passing of a deadline to repay generous federal government support that was doled out during the pandemic.
The Canada Emergency Business Account or CEBA provided more than $49 billion (US$36.4 billion) in loans to businesses during the Covid-19 era. While a portion of the loans were forgivable, the repayment deadline was December 31, 2023, though Justin Trudeau’s government pushed that back multiple times. The final deadline to qualify for some loan forgiveness passed at the end of March.
The loan repayments may explain some of the decline in the number of active businesses, especially as fewer opted to reopen at the beginning of the summer. The repayment deadlines have also likely contributed to closures — business insolvencies also spiked at the start of 2024, after remaining near historic lows while firms had access to the pandemic-era loans.
“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, in an email. “I would be more concerned if we were to see a big drop in new businesses,” he added.
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 remains weak, and consumption spending has slowed despite being propped up by one of the fastest rates of population growth in the world. While there’s no evidence of widespread layoffs, the unemployment rate surprisingly jumped to 6.6% in August, the highest level outside the pandemic since 2017, and up 1.6 percentage points since the start of 2023.
While the agency said the decrease in business openings was widespread across sectors in June, a fifth of the drop was driven by the construction industry. Health care, social assistance and accommodation and food services also contributed to the decline.
Also on Thursday, the Canadian Federation of Independent Business reported that small business optimism fell in September, with only 12% of businesses planning to hire in the short term.
(Adds details about small business outlook. A previous version corrected the unemployment rate.)
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