Businesses keeping bankruptcy at bay
The ability of Canadian businesses to survive the worst recession indecades is giving hope that the rebound from current massive job losseswill be stronger than expected.
The ability of Canadian businesses to survive the worst recession in decades is giving hope that the rebound from current massive job losses will be stronger than expected.
One of the biggest surprises of the downturn — unique to Canada — is that as the economy has slumped, the number of businesses declaring bankruptcy has also declined.
This has hardly ever happened before and although Canada is only seven months into a recession expected to last another half-year, it suggests the corporate destruction of past recessions won’t be a major factor this time.
The CIBC notes that bankruptcies were down 4.4 per cent in March over the previous year.
And during the first three months of 2009 — the worst downturn in recorded history dating back to 1961 — corporate bankruptcies were down by a whopping 14 per cent on a year-over-year basis.
The report says rather than going insolvent, businesses have managed to cut costs by laying off workers, accounting for the steep rise in unemployment since October.
This bodes well for the recovery, it adds, because it will be easier for existing businesses to rehire laid-off workers than to depend on new start-ups to take up the labour market slack.