Findings from CreditorWatch’s monthly ‘Business Risk Index’ for July have revealed that 87.2% of regions around Australia will experience an increase in business failures over the next 12 months. Queensland is forecasted to experience the highest average rate of business failure at 6%, while Western Australia is predicted to experience the largest average increase in business failures.
Western Sydney and South-East Queensland are expected to see the highest rates of business failure over the coming year. In contrast, the areas expected to experience the lowest business failure rates are typically located in regional parts of the country.
In terms of industry risk, Food and Beverage Services tops the list for business failure rates at 8.3%, followed by Arts & Recreation Services (5.8%) and Administrative Support Services (5.6%).
Key Business Risk Index insights for July:
- B2B payment defaults dipped in June but surged in July and are now up 42% year-on-year.
- Credit enquiries are largely flat across 2024, reflecting the subdued trading conditions in the Australian economy.
- Food and Beverage Services is the top-ranked industry by business failure rate by a considerable margin.
- Food and Beverage Services is also the leading industry for outstanding ATO tax debts above $100,000, with a rate of 1.67%.
CreditorWatch CEO, Patrick Coghlan, says the data shows how tough businesses around Australia are doing right now.
“The fact that almost 90 per cent of regions will see an increase in the rate of business failures indicates that the current pressures from interest rates, cost increases and declining consumer demand are being acutely felt right around the country – particularly those areas with younger populations and a higher proportion of businesses in high-risk sectors,” said Coghlan.
“Our hope is that the Stage 3 tax cuts will continue to boost consumer confidence to some extent, but we don’t expect a significant improvement in conditions for businesses until the impacts of one or two rate cuts are felt by households,” he added.
CreditorWatch Chief Economist, Anneke Thompson, says consumer confidence is unlikely to trend upward for some time yet.
“Consumer confidence is still incredibly low, even though consumers reported to Westpac in its August survey that confidence was slightly up,” said Thompson.
“While consumers are now less fearful of an increase in interest rates, and report a small positive sentiment increase from tax cuts, the increase in confidence is not nearly enough to suggest that household consumption will recover any time soon. As long as households are spending less, and we know from retail trade data that spending per head of population has decreased for eight straight quarters, businesses will continue to battle high interest rates and continuing high input costs with falling demand," she explained.
Outlook
CreditorWatch maintains that the operating environment for businesses in Australia will remain very challenging until at least the first quarter of 2025, at which point the RBA is likely to have cut the cash rate or will be very close to cutting it. Its data suggests that the pain felt by businesses will not be spread evenly across the country, as high interest rates have an outsized impact on areas with younger populations and a high proportion of businesses in the construction or discretionary retail spending sectors.
For more information on CreditorWatch's Business Risk Index visit creditorwatch.com.au/businessriskindex
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