Canadian economy faces negative pressures

A trend towards the reduction of Canadian bankruptcies in 2006 is on the horizon but global trade credit insurer Euler Hermes says the Canadian economy will still face negative pressures from several sources, including export countries, regional trends, and structural industry weakness.
The forecast predicts that the number of Canadian corporate insolvencies will fall to approximately 7,600. However, the top five countries that receive Canadian exports are all expected to show an increase in bankruptcies in 2006. The United States which is the recipient of 85% of Canada’s exports is in the midst of an economic slowdown and will see a 3% increase in insolvencies after several years of decline. Meanwhile, Japan (+2%), the United Kingdom (+3%), Germany (+4%), and China (0% – up from 34% in 2005) will also see an increase in the corporate insolvency rate. These increases could have a significantly negative impact on the export market and, ultimately, the Canadian economy.
The improvement in Canadian bankruptcies is almost across the board (four regions out of six are lower); however, the Province of Ontario is on a different path with a significant increase (+8.6%) in 2005.
While the improvement of the Canadian economy and increased interior demand tend to lead to a decrease in bankruptcies, specific industries where structural weaknesses continue must not be underestimated. These include:
* The textile and garment industries will be impacted by the lifting of tariffs and imports from Asia
* The automotive industry is going through a North American crisis
* Some suppliers to the airline industry are experiencing a general slowdown
* Pulp and paper products, which are mainly being exported, are being penalized by the increase of the Canadian dollar
The Euler Hermes index provides comparisons of business failures by country independent of national definitions but taking account of the countries’ economic weight.