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Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud

Bottom line

After bottoming out late last year and rising most of the first half of 2021, insolvencies seem to be trending lower again. Continued assistance to households, low interest rates and the continued economic recovery likely weigh on insolvencies. The economic reopening over the summer and the associated broadening of the recovery and continued employment gains should help prevent further normalization in insolvencies. In addition, household disposable income remains well above its pre-pandemic trend, suggesting that, on average, households are better off now than before the pandemic. However, the phasing out of many government programs is likely to affect household disposable income and could lead to a rise in insolvencies. Moreover, rising interest rates next year could also be a drag on household finances.

In Alberta, a strong recovery in the oil sector, with the value of oil production reaching an all-time high in recent months (record of $10bn in October), and the associated tailwind on income and confidence are likely to prevent a sharp rise in insolvencies in the province.

 

 

Insolvencies decreased in October and remained well below their pre-COVID levels. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), declined by 8.7% in October compared to the same month last year. This resulted from an 18.7% drop in bankruptcies, while proposals decreased 3.4% year-over-year.

On a monthly basis, insolvencies decreased 7.9% month-over-month seasonally-adjusted (sa) in October. The lower insolvencies were led by a decline in both bankruptcies (-7.9% month-over-month sa) and in proposals (-7.9% month-over-month sa). Most provinces saw lower insolvencies on the month, with the exception of Newfoundland and Saskatchewan, with big declines on a seasonally-adjusted basis in Manitoba, New Brunswick and Quebec.

 

 

In Alberta, insolvencies declined 9.1% month-over-month sa and 2.3% compared to the same month last year. Over the past 12 months, there have been 14.0k insolvencies, still well below their pre-pandemic levels. The decrease in insolvencies in October, on a seasonally-adjusted basis, came mainly from a reduction in both proposals (-7.5% month-over-month sa) and bankruptcies (-9.6% month-over-month sa.).

 

 

Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.

Alberta Central member credit unions can download a copy of this report in the Members Area here.

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