Small and mid-sized businesses outperformed the overall Canadian economy in the past 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 2%, 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 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,” he says.

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 Tal.

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.”

The contribution that SMEs make to the Canadian job market is sizeable and continuing to grow, says Tal. “During the year ending March 2008, firms with less than 100 employees created 130,000 new jobs accounting for almost 39% of jobs created in the economy. This is notably higher than the 28% contribution seen in early 2007.”

IE