(18 June 2024 – Australia) Insolvencies for Australian enterprises have run up to a record high as the impacts of stubbornly high inflation, interest rate rises and weaker consumer sentiment squeeze margins.
CreditorWatch data reveals an average increase in the rate of insolvencies of 38 percent to May 2024 year-on-year (YOY) across all industries. The total number of insolvencies is up 34 percent YOY and 41 percent above its pre-pandemic zenith.
Electricity, Gas, Water and Waste Services tops the list of industries by rate of increase in insolvencies, with an 89 per cent increase year-on-year, followed by Education and Training (87 per cent) and Mining (72 per cent). Information, Media and Telecommunications was the only industry to see an improvement in the rate of insolvencies, with a drop of two per cent.
“Multiple interest rate hikes and stubbornly high inflation have forced consumers at all income levels to cut back on spending. We don’t expect a meaningful turnaround in consumer confidence until the impact of at least two rate cuts has been felt, which won’t be until well into 2025. The only bright-spot for households is next-month’s tax cuts, although we don’t see much of this going to discretionary spending” commented CreditorWatch CEO, Patrick Coghlan.
“We have known for some time now that consumers have pulled back on spending quite dramatically as high interest rates and inflation smashed household budgets. This trend took some time to flow through to businesses but is now showing up in the data in the form of increasing late payment rates and rising court actions, as well as increased business failures and insolvencies. Record high trade payment defaults point to increasing cash flow problems within the Australian business sector” stated CreditorWatch Chief Economist, Anneke Thompson.
“Record high migration may have been disguising underlying stress in the economy. Now that migration is moderating, and both consumers and businesses are recognising that interest rates will stay high for some time, confidence is now falling, and businesses are showing clear signs of financial stress.”