Business Cash Flow Recuperates to Pre-COVID Mark – RBA
(2 November 2020 – Australia) Cash flow has been successfully propped up by effective Government subsidies and reductions in expenses such as JobKeeper, loan deferrals and rent moratoriums according to the Reserve Bank of Australia (RBA).
In Q1 2020 preceding the pandemic, one in two businesses had only enough cash on hand to pay one month’s expenses and one in four had enough cash to cover more than three months. By Q4 2020, more than two thirds of businesses have enough cash on hand to cover three or more months of expenses. While firms have experienced significant disruptions, either as a result of enforced lockdowns now starting to ease in Victoria or customers no longer commuting into central business districts, cash flow has recovered and business cash buffers have been boosted.
There are almost 4 million people either on the JobKeeper wage subsidy or JobSeeker unemployment benefit. Insolvencies are expected to ramp up in March 2021 as government support and insolvency protections are wound down.
“This will be helpful during the recovery. Survey evidence suggests that around a quarter of small businesses that are currently receiving income support would close if support were removed now and trading conditions had not improved. The economic recovery is expected to be unpredictable and uneven, so there will be rising business insolvencies and problems for some households in servicing their debts” stated RBA Assistant Governor Michele Bullock.
“At the moment, it looks like the September quarter for the country probably recorded positive growth rather than slightly negative. The growth elsewhere in the country was more than the drag from Victoria, and the drag from Victoria was possibly a little less than what we guessed back in August” said RBA Deputy Governor Guy Debelle
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