SYDNEY, Wednesday 14 September

CreditorWatch’s Business Risk Index (BRI) data for August 2022 shows a clear trend of rising B2B trade payment defaults as the index has for some time, however, other economic and survey data is more inconsistent.

Firstly, consumer sentiment has been dropping for some time now, but retail sales have held up. And secondly, after a period of worsening business sentiment, NAB’s latest survey showed an increase in their index. Trading conditions, profitability and employment conditions were all higher than the previous month.

Capacity utilisation – a leading indicator of changes in unemployment – rose to a record high 86.7 per cent. Not surprisingly, labour costs have increased as a result, increasing by 4.6 per cent and purchase costs grew by 5.4 per cent. Businesses are able to pass these cost increases on to consumers at this stage, with overall product prices increasing by 2.7 per cent and retail prices by 3.3 per cent.

What this tells us is that we are clearly still in the early stages adjustment to new economic conditions. However, given CreditorWatch data is mostly sourced from small and medium sized businesses, we feel that the increasing signs of distress in the form of higher B2B trade payment defaults is a portent of things to come for the wider economy.

There has been limited month to month movement in the probability of default by industry. The food and beverage sector continues to be an outlier, and we expect that delayed payments amongst small businesses will be being felt by this sector. High labour costs and a lack of workers coming through the system is also having a negative impact.

Finally, all industries are being impacted by a lack of staff and an extremely tight labour market. The recent Jobs and Skills Summit may go some way to alleviating this pressure, although the outcomes of the summit will take some time to be felt by businesses.

There is the probability that more temporary workers from the northern hemisphere will choose to travel and work in Australia over the summer, particularly given the impending energy crisis that will impact the UK and Europe over the northern winter. However, their numbers may not be enough to prevent wage increases and put further strain on businesses, particularly in those sectors that may be subject to reducing demand.

-ENDS-

Contacts

Mitchy Koper
GM Communications and Marketing, CreditorWatch
mitchy.koper@creditorwatch.com.au
0417 771 778

Laura Sanford
Senior Account Director, Herd MSL
laura.sanford@herdmsl.com.au
0455 145 164

ABOUT THE BUSINESS RISK INDEX

The Business Risk Index is a predictive economic indicator to help guide businesses when making future growth plans and inform public policy. It is a new credit rating that ranks more than 300 Australian geographies by relative insolvency risk, providing unique insights into the health of Australian businesses by region.

Each region is ranked from best to worst in terms of the potential for businesses in it to become insolvent. The index can also measure the potential for insolvency risk at a national, state and individual business level.

Regions are ranked on a scale from zero to 100, where 100 represents the best credit quality regions, that is, the lowest risk of insolvency, and zero represents the weakest credit quality regions, that is, the highest insolvency risk.

The index is calibrated by data from approximately 1.1 million ASIC-registered, credit-active businesses. It combines these insights with CreditorWatch’s proprietary data, previously published as the monthly Business Risk Review.

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