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Consumer sentiment dropped again after another interest rate rise hurt businesses, says the firm.
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Australian businesses under increasing pressure: CreditorWatch
21 June 2023
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Australian businesses are under increasing pressure to stay afloat amid the challenging economic climate, says CreditorWatch.
The firm said external administrations, business-to-business trade payment defaults, court actions and credit enquiries all trended upward in CreditorWatch’s May Business Risk Index, which saw firms struggle with rising interest rates, high inflation, decreasing demand and declining forward orders.
CreditorWatch chief economist Anneke Thompson said sentiment and confidence among businesses slid over the month.
“Consumer sentiment took another dive this month, following another interest rate rise after the June RBA board meeting,” said Ms Thompson. “Westpac reported that responses during their monthly survey in June deteriorated dramatically following the RBA’s decision.”
“The latest monthly inflation and unemployment data suggests that we will be hit with more rate rises in the coming months, adding to the challenge.”
“Sentiment in the business community has shifted down now that it is clear that core inflation is proving hard to tame. It is now unlikely we will see any downward movement in the cash rate until mid-2024 at the earliest.”
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CreditorWatch revealed the food and beverage services industry again had the highest probability of default over the next 12 months at 7.10 per cent, followed by arts and recreation services at 4.59 per cent and transport, postal and warehousing at 4.59 per cent.
The firm said despite external administrations currently being below their pre-pandemic levels, the trend was growing with further administrations – particularly in the retail trade sector – expected to be recorded, particularly among those that could not clear overhanging stock levels.
CreditorWatch CEO Patrick Coghlan said pressure was mounting on businesses across almost all industries.
“Our business risk index data is showing a clear upward trend in the rate of external administrations across almost all sectors, with mining being one of the few exceptions,” said Mr Coghlan.
“With economic conditions forecast to decline further, we encourage all businesses to perform proper due diligence on their trading partners and monitor them on an ongoing basis to ensure they don’t become an unfortunate statistic.”
Amongst the sectors with the lowest insolvency rates were financial and insurance services at 0.43 per cent and professional, scientific and technical services at 0.42 per cent, while the highest were food and beverage services at 0.91 per cent and construction at 0.76 per cent.
The firm said it expected the insolvency levels would continue to rise as businesses had to confront a reduced revenue forecast in their budgets in the new financial year.
“We already know that there are now fewer jobs being advertised than this time a year ago, and this trend is likely to continue,” it said.
“So far, most Australian employees have felt quite comfortable in their employment and therefore have been more confident to continue to spend and book holidays and tables at restaurants.”
“As the unemployment rate inevitably moves higher however, this trend will reverse, and a lot more belt tightening will occur.”
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