Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Insolvencies declined by 4.4% m-o-m on a seasonally-adjusted basis (SA) in February, following an increase in January. While the data has been quite volatile since the beginning of 2014, even on a seasonally-adjusted basis, there are clear signs that insolvencies were trending lower in recent months.
The consumer insolvency rate (insolvencies per 1000 population) eased in February and is below where it was on the eve of the pandemic. (see Fig 6). Nevertheless, we note that the total levels of insolvencies in BC, Manitoba, Saskatchewan, Alberta and Ontario are above the levels seen in 2019; all those provinces have higher than average levels of debt-to-disposable income (see Fig 7). Similarly, these provinces have seen the biggest rise in insolvency rate compared to pre-Covid.
Business insolvencies eased in February on a seasonally-adjusted basis and are well-below the level seen for the same month last year. Business insolvencies remain below levels seen pre-2009 (see Fig 8). We also note that business bankruptcies have been trending lower since the surge in January 2024 due to the CEBA loan repayment deadline (Fig 9).
Record levels of household debt, declining purchasing power due to the recent inflationary episode, and higher interest rates have put a lot of pressure on households’ finances. The labour market’s resilience has played a crucial role in allowing borrowers to weather these shocks by allowing them to readjust their lending to reduce the shock from higher interest rates on their regular payments. In addition, there are clear evidence that easing interest rates in 2024 has eased households’ financial stress at the end of 2024 and early 2025.
However, with the Canadian economy slowing due to the impact of the US tariffs and the extreme uncertainty, it is likely the situation could deteriorate in the coming months. Job losses are a major risk, further squeezing consumers. As we have pointed to at numerous occasions, a deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies and could have some significantly negative consequences on the economy (see It’s a “Me-cession”, not a recession and Will it be a hard landing or a soft landing? The labour market will decide).
In Alberta, insolvencies have eased in recent months and the consumer insolvency rate is closer to the national average after months as one of the highest. 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. This makes Albertans particularly vulnerable to job losses.
Insolvencies declined 5.4% m-o-m in February on a seasonally-adjusted basis, following a 5.6% m-o-m increase in January. Insolvencies have been quite volatile in 2024, even on a seasonally-adjusted basis. Nevertheless, insolvencies have been on an easing trend in recent months. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), are 7.0% lower compared to the same month last year. This resulted from a 6.6% y-o-y decline in proposals and 8.4% y-o-y reduction in bankruptcies. It’s important to note that proposals represent about 77% of total insolvencies.
Compared to last year, insolvencies are lower in all provinces, except in Newfoundland (+4.7% y-o-y) and BC (+2.3% y-o-y). Insolvencies decreased the most in New Brunswick (-15.9% y-o-y), PEI (-13.0% y-o-y), Manitoba (-12.6% y-o-y), and Saskatchewan (-11.8% y-o-y). They eased the least in Alberta (-3.4% y-o-y), Nova Scotia (-4.5% y-o-y), and Quebec (-6.9% y-o-y).
On a monthly basis, insolvencies declined by 5.4% m-o-m seasonally-adjusted (sa) in February. The details show a decrease in both bankruptcies (-0.7% m-o-m) and proposals (-6.3% m-o-m). At the provincial level, insolvencies eased in most provinces, except in PEI (+13.5% m-o-m), Newfoundland (+3.2% m-o-m), Manitoba (+0.6% m-o-m), and Nova Scotia (+0.3% m-o-m). They decrease the most in Ontario (-8.5% m-o-m), New Brunswick (-7.8% m-o-m), Quebec (-4.2% m-o-m), and Saskatchewan (-2.8% m-o-m).
Relative to 2019, insolvencies in Canada are currently 1.5% lower, with proposals being 27% above their 2019 levels, while bankruptcies are 43% below. We note that the level of insolvencies is higher compared to pre-COVID in BC (+32%), Manitoba (+16.1%), Alberta (+11%), Ontario (+7%), and Saskatchewan (+4%).
The level of insolvencies is still well below pre-pandemic in New Brunswick (-27%), Nova Scotia (-26%), Newfoundland (-25%), PEI (-19%), and Quebec (-16%).
We note that the level of proposals is well above its pre-pandemic level in all provinces, led by BC (+79%), Manitoba (+74%), Alberta (+70%), Saskatchewan (+59%), and Ontario (+57%),
The consumer insolvency rate (number of insolvencies per 1000 people aged 15 and over) eased to 0.325 in February from 0.346. The insolvency rate is the highest in Newfoundland (0.433), Nova Scotia (0.409), New Brunswick (0.409), and Quebec (0.387). It is the lowest in BC (0.255), Manitoba (0.259), Ontario (0.290), and Saskatchewan (0.316).
Compared to 2019, the insolvency rate is 0.049 lower nationally. It is higher than in 2019 only in BC (+0.034) and Manitoba (+0.007). It has eased the most in New Brunswick (-0.222), Nova Scotia (-0.213), Newfoundland (-0.166), and PEI (-0.153).
Business insolvencies decrease 7.6% m-o-m seasonally-adjusted in February and are significantly lower than last year (32.4% y-o-y). The decrease in business insolvencies over the past year, representing less than 5% of total insolvencies, is due to a decline in bankruptcies (-36.3% y-o-y), and in proposals (-18.2% y-o-y). Bankruptcies represent about 78% of business insolvencies. On a year-on-year basis, the decrease in business insolvencies at the national level was mainly the result of lower insolvencies in Ontario (-44.2% y-o-y) and Quebec (-35.4% y-o-y).
By industrial sectors, insolvencies decreased the most y-o-y in accommodation and food services, transportation and warehousing, other services, and professional, technical and scientific services.
Compared to pre-pandemic levels, business insolvencies in Canada are 29% higher, with BC (+136%), Alberta (+100%), Quebec (+32%), Manitoba (+31%), and Ontario (+30%) being the main contributors.
In Alberta, insolvencies eased by 2.1% m-o-m sa. in February and were 3.4% lower compared to the same month last year. Over the past 12 months, there have been 19.3k insolvencies. On a seasonally-adjusted basis, the lower insolvencies in February came from lower proposals (-2.2% m-o-m sa) and (-0.6% m-o-m sa). We note that the level of proposals is currently about 45% above its pre-pandemic level, while bankruptcies are 55% below pre-COVID. On the consumer side, the insolvency rate eased to 0.380 from 0.393. On the business side, insolvencies are 67.9% higher than in February of last year, with a 114% y-o-y increase in proposals and 52% y-o-y in bankruptcies.
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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.