Economic commertary provided by Alberta Central Chief Economist Charles St-Arnaud. 

Bottom line

Insolvencies increased in April on a seasonally-adjusted basis (NSA), after an unusual decline in March. The timing of the Easter holiday may have affected the timing of insolvency fillings. Looking at the increase over the past year, insolvencies are back to their pre-March increasing trend.

Business insolvencies, especially bankruptcies, increased in April but remained lower than the numbers seen in January. Both insolvencies and bankruptcy levels are consistent with the rising trend experienced since mid-2023. As such, the level of business bankruptcies is about 70% higher than last year and almost double the levels seen in 2019.

We also note that the total levels of insolvencies in BC, Ontario, Manitoba, Saskatchewan, and Alberta are well above the levels seen in 2019; all those provinces have higher than average levels of debt-to-disposable income (see Fig 5).

The April data shows that the weaker insolvencies in March were temporary and we suspect this is due to the timing of the Easter holiday. As such, insolvencies remain on an upward trend, suggesting that an increasing share of households are struggling with their debt. Similarly, on the business side, bankruptcies are also increasing, signalling continued pressures.

Record levels of household debt, declining purchasing power due to recent inflationary episode, and higher interest rates are putting pressure on households’ finances. So far, the labour market’s resilience has meant that borrowers have been able to weather the shock by allowing them to readjust their lending to reduce the shock from higher interest rates on their regular payments. However, a rise in unemployment would be a major risk, further squeezing consumers. Moreover, previous rate hikes have not yet fully filtered through to household borrowing, with many homeowners having to renew their mortgages at higher rates over the next few years. All those factors point to further rises in insolvencies. The question is whether the labour market will continue to provide some relief with its low albeit increasing unemployment rate and the vast amount of savings accumulated during the pandemic. A deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies (see Will it be a hard landing or a soft landing? The labour market will decide).

In Alberta, the strength of the oil sector, with high revenue levels and the associated tailwind to the economy, and a robust labour market are also holding back insolvencies. However, Albertan households have some of the highest debt-to-income ratios, making them vulnerable to rising interest rates and income losses. They have also seen a bigger decline in their purchasing power than other provinces due to underperforming wages and income gains. In addition, we note that the level of insolvency is at record highs and proposals (a renegotiation of terms) are well above their pre-pandemic level. Still, there has been some improvement since the start of the year. On the business side, we note that insolvencies, especially proposals, have increased sharply over the past year.

Insolvencies jumped 22.3% m-o-m in April on a seasonally-adjusted basis, following a big seasonally-adjusted decline in March (-18.4% m-o-m). The volatility in the monthly seasonally-adjusted changes could be due to the timing of the Easter holiday. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 23.9% compared to the same month last year and closer to the y-o-y changes seen in the months prior to March. This resulted from a 22.9% y-o-y rise in proposals and a 27.1% y-o-y increase in bankruptcies. It’s important to note that proposals represent about 76% of total insolvencies.

Compared to last year, insolvencies have increased the most since last year in Ontario (+34.3% y-o-y), Quebec (+22.4% y-o-y), Alberta (+22.6% y-o-y), and BC (+12.7% y-o-y). Insolvencies are significantly lower than last year in Newfoundland (-20.1% y-o-y) and Nova Scotia (-1.0% y-o-y).

On a monthly basis, insolvencies jumped by 22.3% m-o-m seasonally-adjusted (sa) in April. The details show that the higher number was due to a surge in both proposals (+23.0% m-o-m) and bankruptcies (+21.1% m-o-m). At the provincial level, insolvencies rose in all provinces except in Newfoundland (-1.9% m-o-m). Insolvencies increased the most in Ontario (+26.1% m-o-m), Quebec (+25.0% m-o-m), Alberta (+20.7% m-o-m), and BC (+13.1% m-o-m).

Relative to 2019, insolvencies in Canada are currently 6.0% higher, mainly due to insolvencies being 36.1% above their 2019 levels while bankruptcies re 38% below. We note that the level of insolvencies is higher compared to pre-COVID in BC (+26.4%), Ontario (+24.4%), Manitoba (+16.9%), Saskatchewan (+13.1%), and Alberta (+11.7%). The level of insolvencies is well below pre-pandemic in Newfoundland (-37.5%), Nova Scotia (-31.7%), New Brunswick (-30.3%), PEI (-26.0%), and Quebec (-10.1%).

We note that the level of proposals in Canada is well above its pre-pandemic level (+36.1%). The level of proposals is also well above its pre-COVID level in all provinces, except in Newfoundland (-9.0%) and PEI (-3.1%). It is the highest above 2019 levels in BC (+64.6%), Manitoba (+60.2%), Ontario (+50.2%), Saskatchewan (+47.7%), and Alberta (+43.3%).

Business insolvencies jumped 25.4% m-o-m seasonally-adjusted in April (+60.2% y-o-y). The surge in business insolvencies, which represent less than 5% of total insolvencies, is due to an increase in bankruptcies (+29.1% m-o-m sa. and 69.4% y-o-y) and proposals (+9.8% m-o-m sa. and +33.7% y-o-y). On a year-on-year basis, business insolvencies increased the most in Alberta (+78.6%), Quebec (+62.8%), Ontario (+61.1%), and BC (+52.6%). The sectors most affected remain accommodation and food services, retail trade and construction.

Compared to pre-pandemic levels, business insolvencies in Canada are 87.7% higher, with BC (+160%), Ontario (+101%), Quebec (+93%), and Alberta (+57%) being the main contributors. In Ontario, Quebec and BC, the rise in business insolvencies is mainly the result of higher bankruptcies, while proposals are playing a bigger role in Alberta.

In Alberta, insolvencies jumped by 20.7% m-o-m sa. and are 22.6% compared to the same month last year. Over the past 12 months, there have been 18.6k insolvencies, its highest level on record. On a seasonally-adjusted basis, the surge in insolvencies in March came from higher bankruptcies (+16.2% m-o-m sa) and proposals (+21.7% m-o-m sa). We note that the level of proposals is currently about 43% above its pre-pandemic level, while bankruptcies are 49% below pre-COVID. On the business side, insolvencies increased 79% compared to April of last year, with proposals up by 100% and bankruptcies by 70% compared to last year.


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