Business closed

Courtesy CBC

The pandemic has hammered Canadian businesses to the point 50% of those closed in 2021 are still shuttered, says a Bank of Canada study.

Researchers said it was critical to calculate the scope of insolvencies and so-called “zombie” businesses.

“Data is suggestive of the existence of business hibernation during the pandemic,” said a bank report.

“For a crisis propagating as fast as the COVID-19 pandemic, monitoring the evolution of businesses in a timely manner is critically important for policy makers.”

Blacklock’s Reporter said researchers tracked 12,976 businesses in Vancouver, Toronto and Ottawa that were subject to lockdown orders in April and May 2021 including bars, restaurants, shops, nightclubs and motels.

“Half of businesses recorded as temporarily closed in May had reopened by the end of September,” said the bank report.

“Forty per cent were still hibernating, 10% were closed for good.”

“Traditional bankruptcies or business registries data cannot capture COVID features well.”

Bankruptcy court filings typically occur months after insolvencies, according to the Superintendent of Bankruptcy.

“Insolvency is a lagging indicator,” Superintendent Elisabeth Lang said in July 7, 2020 testimony at the Commons finance committee.

“We are keeping a very close eye on insolvency rates compared with the last significant Canadian recession in 2008.”

The Bank of Canada based its findings on business sampling through Google Places, “the dataset behind the Google Maps service,” for information from businesses that indicated whether they were open or closed.

Researchers complained of the “absence of real time data on business health” that left the bank with little information on whether lockdowns were “turning non-productive firms into zombies.

“Our estimates align well with the timing of COVID-19 restrictions and are validated by a survey of recently opened businesses,” said the report.

Bank researchers did follow-up visits with Ottawa businesses included in the three-city survey to confirm whether they were opened or closed.

The Canadian Federation of Independent Business in 2020 testimony at the Senate national finance committee said the COVID-19 recession crushed thousands of small operators.

“In my view there are hundreds of thousands of zombie businesses, businesses that are essentially dead but haven’t finalized the closure process altogether,” testified Dan Kelly, CEO of the Federation.

“They have a paper sign saying, ‘Temporarily Closed’.”

The last recession in 2008 saw more than 158,000 businesses collapse.

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