“Canadian businesses are clearly feeling pressure from the economic slowdown and are pulling back on investment to manage that pressure,” said William Phelan, president of PayNet. “The pullback is not resulting from financial stress, rather it is from a lack of demand for goods and services.”
Contraction continued within most major industry sectors of the Canadian economy. The sectors which declined the most compared to last year were retail (-15%) and transportation (-19%), and their pace of decline is increasing.
Manufacturing and professional services remain the only expanding industry sectors, up 6% and 5%, respectively.
Loan quality exhibits no major signs of financial stress. The PayNet Canadian Small Business Delinquency Index (CSBDI) 31-180 days past due decreased 3 basis points to 1.17% in June 2016 from 1.20% in May 2016. Compared to one year ago, delinquency increased 9 basis points.
Industry sectors remain about the same as the prior month with almost a zero increase in the trend rate to higher loans past due. Manufacturing exhibited the largest increase, up 51 basis points over the prior year. Transportation (34 basis points), construction (17 basis points) and professional services (18 basis points) registered the next largest increases. Retail and agriculture showed slight decreases in past dues.
“Canadian businesses are compensating by cutting costs to adjust to the economic shifts, without going into survival mode, in a sign they are managing this slowdown relatively well,” Phelan said. “Many loans have been restructured especially out West. The question is how long restructuring can go on until lenders finally are forced to recognize credit losses.”
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