Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud
After bottoming out late last year, the increase in insolvencies remain modest so far this year and stabilized at a level well below those seen before the pandemic. Continued assistance to households, low interest rates and the continued economic recovery are likely weighing on insolvencies. The economic reopening over the summer and the associated broadening of the recovery should help prevent further normalization in insolvencies.
In Alberta, a strong recovery in the oil sector, with the value of oil production reaching an all-time high in July and expected to continue to remain strong, and the associated tailwind on income and confidence are likely to prevent a sharp rise in insolvencies in the province.
Insolvencies increased somewhat in August but remained well below their pre-COVID levels. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), increased by 8.7% in August compared to the same month last year. This resulted from a 5.3% decline in bankruptcies and a 16.8% y-o-y surge in proposals. However, it is important to note that Summer 2020 was a low point in insolvencies, mathematically boosting the year-over-year growth rate.
On a monthly basis, insolvencies increased in 4.5% m-o-m seasonally-adjusted (sa) in August. The rise in insolvencies was led by a rise in bankruptcies (+9.8% m-o-m sa) and in proposals (+3.5% m-o-m sa). Most provinces saw higher insolvencies on the month, with the exception of Alberta, Manitoba and Newfoundland, with big increases on a seasonally-adjusted basis in New Brunswick, Ontario and Nova Scotia.
In Alberta, insolvencies declined 6.1% m-o-m sa but increased by 14.3% compared to the same month last year. Over the past 12 months, there have been 13.8k insolvencies, still well below their pre-pandemic levels. The decrease in insolvencies in August, on a seasonally-adjusted basis, came mainly from bankruptcies (+10.1% m-o-m sa), while proposals decreased (-7.0% m-o-m sa.).
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