CreditorWatch CEO, Patrick Coghlan, says the rising business failure rate shows how urgently businesses need interest rate relief.

“One of the biggest contributing factors to this increase in our business failure rate is the lack of consumer demand,” he says. “This is reflected in the ABS household spending and Westpac Consumer Sentiment numbers.

“Consumers won’t be inclined to open their wallets in any significant way until they get a reduction in their mortgage payments. A couple of rate cuts would also mean that credit becomes more affordable for businesses, and they are able to get back on the growth track as well.”

OTHER BUSINESS RISK INDEX INSIGHTS FOR AUGUST:

• Court actions are now well above pre-COVID levels as large creditors such as the banks and the ATO resume collections activity. Actions were up 15.4 per cent year-on-year in August.
• Credit enquiries are largely flat across 2024, reflecting the subdued trading conditions in the Australian economy. Fewer businesses are applying for commercial loans and trade credit.
• Food and Beverage Services is also the leading industry for outstanding ATO tax debts above $100,000, with a rate of 1.73 per cent. Construction and Transport, Postal and Warehousing are next at 1.20 per cent and 0.89 per cent respectively.
• The lowest risk region in Australia is Norwood-Payneham-St Peters in inner-city Adelaide. Businesses in that area had an average failure rate of 3.4 per cent over the past 12 months. As well as inner-Adelaide, the lowest risk regions were concentrated around regional Victoria, North Queensland and the northern suburbs of Sydney.
• The highest risk regions were in Western Sydney and South-East Queensland. Businesses in Bringelly-Green Valley in Western Sydney had a failure rate of 8.2 per cent over the past 12 months.
• Perth had the lowest rate of business failures among the capital city CBDs (4.08 per cent), followed by Adelaide (4.14 per cent), Melbourne (4.57 per cent), Brisbane (4.72 per cent) and Sydney (5.23 per cent).

OUTLOOK

CreditorWatch Chief Economist, Anneke Thompson says tomorrow’s (Thursday 19 September) ABS Labour Force data will be very illuminating on what the next few months holds for the Australian economy.

“Our data, consistently and for some time now, indicates that Australian businesses are operating under extremely challenging conditions – particularly those in the Food and Beverage, Arts and Recreation, Retail Trade and Construction sectors,” she says.

“Under these circumstances, it is almost certain that unemployment will continue to rise – the question is by how much? So far, very strong public sector employment, especially in the NDIS sector, has masked weakening underlying job creation in the private sector.

“We don’t expect businesses to feel more confident until there have been at least two or three cuts to the cash rate. Unfortunately, this means it is likely things will get worse before they get better.”