PayNet Says Canadian Private Economy Is Bottoming Out
SEP 22, 2016 - 6:19 am
The most recent PayNet Canadian Small Business Lending Index increased slightly from 118.4 in June 2016 to 118.7 in July 2016. Compared to the same month one year ago, the index is down 11%.
The index is down eight-straight months on a year-over-year comparison after 12 consecutive months of increases. Lending activity in accommodation and food decreased by 4% and transportation fell by 2%. On a regional basis, lending in Saskatchewan increased by 1%, but every other region decreased, including Alberta by 3%.
“After seeing this pronounced wave of contraction in the Canadian economy continue for eight months, things appear to be bottoming out,” said William Phelan, president of PayNet.
Despite this reading, PayNet said most Canadian private companies continue to maintain financial health. The PayNet Canadian Small Business Delinquency Index 31-180 days past due decreased three basis points from 1.17% in June 2016 to 1.14% in July 2016.
“On the surface, financial conditions of private companies don’t look that bad, but the prevalence of restructurings clouds the results,” Phelan said. “Financial health should become more distinguishable shortly because restructures can’t continue indefinitely.”
In a first for the Canadian business market, PayNet is releasing historical and forecasted default rates for private commercial businesses. The data shows rates remained far below default rates before and during the Great Recession of 2007 – 2010. Defaults hit an all-time low in 2012 at just 1.3% of all private businesses. The steady rise of defaults since 2012 can be viewed as back to normal risk taking. As a result, the rise in 2016 to 2.3% is a reversion to normal default rates.
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