More than 260,000 new businesses to launch by 2013

TORONTO, Oct. 6 /CNW/ - CIBC (CM: TSX; NYSE) - Small and mid-sized businesses outperformed the overall economy in the past year as Canadians opened their own businesses at a fevered pace last year, a trend that will continue to grow as the economy recovers in 2009, notes a new report from CIBC World Markets.

"We expect that over the coming five years, the average annual growth in the number of small and mid-size businesses will exceed two per cent, leading to the creation of no less than 260,000 new businesses by 2013," says Benjamin Tal Senior Economist at CIBC World Markets in his latest Small Business Report.

Since the beginning of the decade, more than 300,000 small and mid-size enterprises (SMEs) were launched, including 33,000 in 2007 alone, says Mr. Tal, who found that their performance has been impressive. "Small businesses were quick to capitalize on the acceleration in economic activity between 2005 and 2007, outpacing the overall economy by a full percentage point," says Mr. Tal.

And while slowing market conditions are impacting SMEs, he says the sector is "for the first time in more than two decades" outperforming the rest of the economy during a downturn. "This is significant given that historically, SMEs led the overall economy into periods of slowdowns and, in the process, suffered disproportionate hardship compared to larger firms. By next year, as the economy begins to recover, SMEs in aggregate appear to be well positioned to resume their traditional role as the pioneers of the economic cycle."

The well-documented breakneck pace of consumer spending last year is one reason why small businesses have overcome weaker economic conditions, notes Mr. Tal. However, another key driver has been the strong housing market, which has given birth to 700,000 jobs since 2000. "With SMEs employing close to 70 per cent of workers in the construction and real estate sectors, the benefit is obvious," says Mr. Tal, adding that the "levelling off in housing activity in Canada will hurt the momentum in overall SME activity, but the level of activity will remain at historic highs."

The booming economy of Alberta produced the greatest percentage jump in new SMEs in Canada last year. He notes that Ontario produced the second largest climb "probably reflecting the growing reliance of the province on the service industry as well as outsourcing activity as large corporations try to cut costs."

In Manitoba and Saskatchewan, the economic momentum has yet to be felt by SMEs as the sector actually shrunk last year. However, Mr. Tal expects that trend to reverse itself, and ultimately lead those provinces to record some of the largest gains in SME activity in the years ahead.

By city, the fastest rate of small business formation in 2007 was in Sherbrooke, followed by Edmonton, Calgary and Toronto. Mr.