Quarterly Bulletin on Insolvency Statistics
2^nd quarter 2005

Office of the Superintendent of Bankruptcy
July 2005

Recent economic developments

Economic conditions in Canada have been relatively good since the beginning of 2005. Driven by consumer spending, national annualized GDP growth was of 2.3% during the 1^st quarter of 2005. However, regional GDP growth was still quite uneven ( Table 1 ). Annualized growth in employment was of 1.7% for the 2^nd quarter of 2005. In contrast, employment was significantly down in both Quebec and the Manitoba/Saskatchewan region, where the number of jobs declined by 2.2% and 1.9%, respectively. British Columbia and Ontario recorded the best performances with increases in employment of 5.2% and 3.9%, respectively. During the 2^nd quarter, the national unemployment rate fell to 6.8%, a 30 year low. With the exchange rate over US$0.80 for a 3^rd consecutive quarter, there is still some pressure on Canadian exports.

During the 1^st quarter of 2005, the annualized growth rate in consumer credit was a steep 12.7% while mortgage credit grew by 8.6%. During the same period, personal disposable income rose by only 1.2%. Thus, the debt-to-income ratio continued its climb for a 16^th consecutive quarter, and is now standing at 116.5%. Low interest rates mainly account for this increase in credit. For instance, the 5-year mortgage interest rate was on average 5.9% during the 2^nd quarter of 2005, a 0.2 percentage point decline compared to the previous quarter. Most experts expect an interest rate increase before the end of the year. This could slow down credit growth and, at the same time, put some debtors, particularly those who will be renewing their mortgage, in a more difficult financial situation.

Recent increase in the number of insolvencies

Despite good economic conditions, high consumer indebtedness may start to take its toll on the number of consumer insolvencies. Consumer insolvencies increased by 5.0% when comparing the 2^nd quarter of 2005 to the same quarter of 2004, after recording negative growth for the three preceding periods ( Table 2 ). Since the beginning of the year, consumer insolvencies have increased by 1.0% and commercial insolvencies fell by 4.5%.

On a regional basis, the insolvency picture is still quite varied. Since the beginning of the year, consumer insolvencies have decreased in 2 of the 6 regions. Alberta (-13.4%) showed the largest decline whereas the Atlantic region (12.4%) had the largest increase in new consumer filings. Looking at business insolvency, 4 out of the 6 regions registered a decline in new filings since the beginning of 2005. The Atlantic region (8.6%) had the largest increase while British Columbia (-18.0%) boasted the most significant drop.

Since the beginning of the year, insolvency by industrial sector has increased in 6 of the 16 sectors ( Table 3 ). The strongest increase was recorded in the Finance, Insurance, and Real Estate sector (11.4%) while the Information and Cultural Industries (-28.0%) showed the largest decrease. The Construction (891) and Retail Trade (732) sectors are those that produced the largest number of new filings since the beginning of 2005.

Prepared by Richard Archambault in collaboration with Martin Blais and Dominic Laverdière of the Strategic Information and Analysis Group. If you have questions or comments, please contact Richard Archambault archambault.richard@ic.gc.ca .