Canadian small- and medium-sized enterprises (SMEs) are managing through this recession better than any since the Second World War and outperforming larger, more established competitors, according to a new report by CIBC World Markets.
The total number of SMEs grew and employment held steady compared to a 10% drop in the numbers and employment figures of their larger competitors. The number of SME bankruptcies also decreased compared to the previous year.
While CIBC's SME economic activity index saw a 3% decline for the year ending June 2009, the overall economy saw a much larger drop of 4.7% during the same period.
The domestic orientation of Canadian SMEs shielded the sector from the recent rise in the value of the Canadian dollar and will continue to protect it from an expected weak export market in 2010.
The report suggests about a quarter of Canadian SMEs are in sectors that are directly impacted by a stronger loonie.
Relatively confident consumers and strong consumer spending were key factors helping Canadian SMEs weather the recession.
A number of economic factors have kept Canadians spending despite the recession, including:
- unemployment duration is still well below the level seen in any other G-7 country
- Canadian households have three times more cash than their American counterparts
- Canadian income grew twice as fast as American household income in the past two years
- The decline in Canadian net worth since the beginning of the crisis is only a fraction of the decline in the U.S.
"More confident consumers are a pre-condition for SME success," said Benjamin Tal, senior economist at CIBC World Markets. "After falling during the recession, consumer confidence in Canada has made a strong comeback, as opposed to the U.S., where confidence has only improved marginally from a deeper recessionary hit."
He added, "Higher confidence means that every basis point cut in interest rates by the Bank of Canada achieves much more consumer spending here than stateside."
Tal suggests that SMEs will be increasing their significance in the Canadian economy as a whole, alongside large corporations.
B.C., the province with the largest economic contribution from small business, will remain an attractive spot for SMEs due to economic growth that is likely to match the national average.
High small business survival rates and a strong inflow of immigrations are also positive attributes supporting small business in the province.