Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.
After bottoming out late last year and rising most of the first half of 2021, insolvencies seem to be trending lower again. Low interest rates and the continued economic recovery likely weigh on insolvencies. The economic reopening and the associated broadening of the recovery and continued employment gains should hold back insolvencies. However, a normalization in disposable income, as income support programs are phased out, declining purchasing power due to rising inflation, and the gradual rise in interest rates will put pressures on households’ finances. The fact that household indebtedness reached a record in late 2021 should be a source of concern (see). The first few months of 2022 will be interesting, as insolvencies exhibit strong seasonality and increase sharply during that period.
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 $10bn in October and December), and the associated tailwind on income and confidence are likely to help prevent a sharp rise in insolvencies in the province.
Insolvencies decreased in January and remained well below their pre-COVID levels. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), declined by 6.5% in January compared to the same month last year. This resulted from a 13.9% drop in bankruptcies, while proposals eased by 3.2% y-o-y.
On a monthly basis, insolvencies decreased 3.3% m-o-m seasonally-adjusted (sa) in January. The lower insolvencies were led by a decline in both bankruptcies (-3.9% m-o-m sa) and proposals (-6.3% m-o-m sa). Many provinces saw lower insolvencies on the month, led Manitoba, Saskatchewan, Alberta, BC and Ontario. Insolvencies increased in Newfoundland, PEI, Nova Scotia and Quebec.
In Alberta, insolvencies declined 10.0% m-o-m sa and 10.9% 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 decrease in insolvencies in January, on a seasonally-adjusted basis, came from a reduction in both proposals (-9.5% m-o-m sa) and bankruptcies (-6.7% m-o-m sa.).
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