Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Insolvencies remained low in April, as low interest rates and the continued economic recovery with sustained employment gains are holding them back. However, they could be bottoming out, with the rise in insolvencies so far this year slightly stronger than suggested by seasonal patterns. In addition, a record level of household debt, a normalization in disposable income as income support programs are phased out, declining purchasing power due to rising inflation, and the sharp rise in interest rates will put pressures on households’ finances (see The Great Consumer Squeeze for details).
In Alberta, a strong recovery in the oil sector, with the value of oil production reaching an all-time high since mid-2021 (record production value of $14bn in March 2022), and the associated tailwind on income and confidence are likely to help to hold back insolvencies. However, Albertan households have some of the highest debt to income ratio making them vulnerable to rising interest rates.
Insolvencies decreased slightly in April and remained well below their pre-COVID levels. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 0.1% compared to the same month last year. This resulted from an 8.6% y-o-y increase in proposals, while bankruptcies were down 16.5% y-o-y. Compared to last year, insolvencies increased the most in PEI (+17.2% y-o-y), Saskatchewan (+4.1% y-o-y), Quebec (+3.5% y-o-y), and Nova Scotia (+2.4% y-o-y). Insolvencies decreased in Newfoundland (-25.9% y-o-y), New Brunswick (-15.7%), BC (-3.6% y-o-y), and Manitoba (-2.2% y-o-y).
On a monthly basis, inched lower by 0.1% m-o-m seasonally-adjusted (sa) in April. The lower insolvencies were led by a decrease in bankruptcies (-1.3% m-o-m sa), while proposals increased (+1.1% m-o-m sa). The decline in insolvencies on the month was led by New Brunswick (-6.5% m-o-m), PEI (-6.4% m-o-m), BC (-6.2% m-o-m) and Newfoundland (-5.8% m-o-m), while it rose in Nova Scotia (+10.6% m-o-m), Alberta (+6.2% m-o-m), and Saskatchewan (+3.0% m-o-m).
In Alberta, insolvencies rose by 6.2% m-o-m sa and edged higher by 0.3% 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 of 17.2k. The increase in insolvencies in April, on a seasonally-adjusted basis, came from a rise in both proposals (+6.9% m-o-m sa) and bankruptcies (+7.1% m-o-m sa.).
Independent Opinion
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