Australian businesses are failing at the greatest rate since the pandemic, with the hospitality sector the hardest hit.
The latest CreditorWatch Business Risk Index revealed the average failure rate for Australian businesses sits at 5.04 percent, having climbed from 3.97 percent in October last year.
CreditorWatch Chief Economist Ivan Colhoun said the previous high was 5.08 percent in October, 2020.
“Business failures are continuing to rise and are now at their highest rate since the height of the COVID-19 pandemic.” Mr Colhoun said.
He said the failure rate fell steadily after the initial phase of the pandemic, but reversed trend in October 2023.
“Higher prices and interest rates have increased the cost of living for consumers and the cost of doing business for companies.”
Mr Colhoun said the ATO also recommenced collection activities at that time to attempt to recover some of the $35 billion in outstanding debt owed to it by small businesses.
“Businesses are experiencing many of the same cost pressures as consumers such as higher electricity, insurance and rental costs, as well as the impacts of minimum wage increases.
“Together with some greater caution in discretionary spending and softness in interest rate sensitive sectors of the economy, this unsurprisingly has led to higher voluntary business closures and some rise in insolvencies.”
Mr Colhoun said an industry breakdown showed ongoing pressure on businesses in the Food and Beverage Services sector as consumers continued their vigilance around discretionary spending.
He said Food and Beverage recorded the highest failure rate of all industries in October, increasing to 8.5 percent on a rolling 12-month basis from 8.3 percent in the 12 months to September.
“CreditorWatch’s 12-month forecast is for the failure rate in the sector to rise further to 9.1 percent.”
Mr Colhoun said the impact of the July 1 tax cuts are yet to be seen, but could ease some of the pressures on consumers and businesses.
He said measures of consumer confidence and business confidence improved in October, perhaps as income tax cuts started flowing more broadly through the economy, share prices continued rising and as employment growth remained strong and unemployment very low and stable at 4.1 percent.
“These are favourable developments in what remains an uncertain time for businesses, impacted by many cross currents including Geopolitics, Technology and post-pandemic effects to name a few of the major forces on top of high inflation and high interest rates.”
He said the return of US President Donald Trump would likely add further uncertainty to the outlook, with policy promises of significant tariffs on China and other trading partners – if enacted – likely to pressure US inflation.
