Canadian businesses respond to recession by getting smaller but not by declaring bankruptcy

CIBC World Markets economist Benjamin Tal notes that the rate of business bankruptcies in this recession are a puzzler:

Given the current fragile state of the Canadian economy and the likelihood that first-quarter GDP will be the steepest drop on record, one would expect the number of business bankruptcies in the economy to skyrocket. The reality, however, is surprisingly different. Not only are business bankruptcies not rising, but they are, in fact, falling. This trajectory is completely inconsistent with both the experience seen in any other recession and the current situation in the US, where business bankruptcies are rising at a rate not seen since 1975. This abnormality suggests that, at least for now, downsizing as opposed to broadly based plant closures, is what defines the response of many Canadian firms to the current economic recession . . . [Read the report – PDF]