In Q1 alone, consumer insolvency levels in Canada increased by 28.4% annually
The trend of rising household insolvencies could lead to trouble for the Canadian economy over the long term, according to Alberta Central chief economist and former Bank of Canada economist Charles St-Arnaud.
Data from the Canadian Association of Insolvency and Restructuring Professionals showed that in the first quarter alone, consumer insolvency levels in Canada increased by 28.4% annually. This was the largest year-over-year increase for the metric since 2009.
In the first three months of 2023, an average of 330 individuals filed for consumer insolvency every day, totalling 29,725 filings during that quarter, CAIRP added.
This represented the latest in the complete reversal of pandemic-era declines in insolvency levels, St-Arnaud told BNN Bloomberg.
“What’s starting to be concerning is the trend,” St-Arnaud said. “Insolvencies are very much a lagging indicator of the economic cycle. Usually they tend to peak 12 months after the start of a recession.”
Such a slowdown has yet to manifest – which is still just as concerning, the economist warned.
“We still haven’t started a recession,” St-Arnaud said. “The question is, when are they going to peak and how bad is it going to be?”
If the crisis proves severe enough, the number of Canadians losing their jobs and sinking into further debt could force banks to become more hesitant to lend in the first place.
“That's where the negative feedback loop could be a bit more severe on the real economy,” St-Arnaud said. “For the Bank of Canada, it's part of… some of the collateral damage of fighting inflation. The question is how bad is it going to be, and do we start to see a negative feedback loop into the real economy?”
