Canada business insolvencies rose 10.2% in Q2 compared to a year ago

It’s another sign of strain in the Canadian economy.

 

Late payments by businesses jumped by 10.2 per cent in the second quarter compared with the same period last year, according to a study released Tuesday by credit bureau Equifax Canada.

 

“It’s not cataclysmic … but there are still some rough patches to get through,” said Equifax executive Jeff Brown.

 

The report found that roughly 56,000 businesses missed a debt payment in the second quarter. The overall debt held by Canadian businesses reported to Equifax by lenders hit $33.8 billion in the quarter, a jump of 12.8 per cent. Mortgage debt shot up 28.2 per cent to $13.3 billion, while line of credit debt jumped 24.2 per cent to $2.1 billion. Credit card debt rose 16.9 per cent to $6 billion.

The report doesn’t include corporate bonds or short-term commercial paper, like those issued by publicly traded corporations.

 

If there was one slightly bright patch, Brown noted, it’s that insolvencies fell 23.1 per cent to 1,500 in the second quarter of 2024 compared with the first quarter of the year. But compared with the second quarter a year ago, it was still a 41.4 per cent increase.

 

Two sectors that contributed significantly to the rise in late payments are transportation and construction, said Brown. And the struggles in construction, he added, are directly linked to the lacklustre real estate market.

 

“If we don’t have a recovery sometime soon in the real estate market, we’re going to have a long time to recover for construction,” said Brown.

 

While the Bank of Canada has started cutting interest rates, they’re still high compared with where they were a few years ago. And for companies in the construction industry, that equals double the pain: Housing sales aren’t strong, and financing costs for equipment are high, Brown said.

 

“If you think about the construction industry, they have a lot higher risk, because of the cost of their equipment,” said Brown. “If you go through and you’re financing a bulldozer or a piece of equipment that’s $50,000 or half a million, and you have it on a high-interest-rate loan, if you default on that loan or miss a payment, the consequences of that are dire, and it’s very difficult to recover.”

 

Another report, issued Monday by the Canadian Real Estate Association, found that the number of homes sold in August rose 1.3 per cent from July, but were still well below the 10-year monthly average. The MLS national Home Price Index was flat in August compared with July, but was down 3.9 per cent from August a year ago.

 

“Despite some fledgling signs of life to kick off the long-awaited monetary policy easing cycle, the Canadian housing market activity still looks to be stuck in the same holding pattern it’s been in all year,” CREA senior economist Shaun Cathcart said in a news release.

The transportation sector, meanwhile, is feeling the pinch from a slump in consumer spending, said Equifax’s Brown.

 

“People are buying fewer goods, so there’s less to transport, so those shipping companies are hurting because of that too,” said Brown.

 

A slump in the construction sector is also hitting some parts of the retail industry, Brown said.

 

“When you look at the big-box stores where people buy lumber, or plumbing parts, those businesses are having a tough year, because people aren’t going through and renovating their houses,” said Brown.

 

 

 

 

This article was first reported by The Star