A former Bank of Canada economist says the trend of rising household insolvencies could spell trouble for the broader economy down the line.
Insolvencies dropped during the pandemic as people saved money, but Charles St-Arnaud, chief economist with Alberta Central, told BNN Bloomberg that the trend is now being “reversed completely,” with insolvencies up compared with 2019 – and the rise has been much faster than expected.
“Insolvencies are very much a lagging indicator of the economic cycle. Usually they tend to peak 12 months after the start of a recession. We still haven't started a recession,” he continued. “The question is, when are they going to peak and how bad is it going to be?” Bankruptcies are still comparatively low, and St-Arnaud suggested that this could be thanks to Canada’s strong labour market, because banks are more willing to renegotiate on a loan if people still have income. That dynamic could change, and he cautioned that bankruptcies could rise if more people lose their jobs and banks become more wary of their ability to pay their debts.
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