Business bankruptcies reach highest level since pandemic peak – InvestorDaily

Business failures in Australia are on the rise, reaching their highest levels since the peak of the pandemic, according to CreditorWatch.

Namely, the average failure rate for local businesses is 5.04 percent, up from 3.97 percent last October. The previous high was 5.08% in October 2020.

CreditorWatch explained that the number of denials fell steadily after the initial phase of the pandemic, but began to recover in October 2023.

“Higher prices and interest rates have increased the cost of living for consumers and the cost of doing business for companies,” the company said.

“At that time, the ATO also resumed debt collection activity in an attempt to recover some of the $35 billion in outstanding small business debt.”

In industry, new data showed food and drink recorded the highest rate of defects, rising to 8.5 percent over the rolling 12-month period from 8.3 percent in the 12 months to September.

Notably, CreditorWatch predicts that number will rise to 9.1 percent next year, reflecting continued pressure on the sector as consumers remain vigilant about discretionary spending.

From a regional perspective, Western Sydney and South East Queensland were at greatest risk of failure.

Meanwhile, the regions with the lowest risk are concentrated around inner Adelaide, regional Victoria, North Queensland and Sydney’s northern suburbs.

Commenting on the results, CreditorWatch chief executive Patrick Coghlan said that while rising inflation appears to have peaked, businesses are expecting interest rates to fall.

“A slowdown in inflation will certainly help business, but we must remember that this just means that price growth has slowed, so price pressures remain. In most cases, you won’t see a reduction in the cost of goods and services,” he said.

“Businesses are desperate for interest rates to fall, so households are getting some relief from cost of living pressures and are starting to spend more.”

In fact, chief economist Ivan Colhoun noted that businesses are experiencing many of the same cost pressures as consumers, including higher energy, insurance and rent costs, as well as the impact of higher minimum wages.

“Together with some greater caution in discretionary spending and softness in interest rate-sensitive sectors of the economy, this has unsurprisingly led to an increase in voluntary business closures and some rise in insolvencies,” he said.

Interestingly, consumer confidence and business confidence improved in October, according to NAB’s recent business survey.

CreditorWatch suggested that income tax cuts were starting to trickle down across the economy, with continued rises in stock prices and strong job growth playing a role.

“These are welcome developments in what remains an uncertain time for business, impacted by many cross-currents including geopolitics, technology and post-pandemic fallout, to name just a few of the underlying forces, in addition to high inflation and high interest rates. “- the company stated.