Several leading indicators in the May 2023 CreditorWatch Business Risk Index (BRI) show Australian businesses are coming under increasing pressure.

External administrations, B2B trade payment defaults, court actions and credit enquiries are all trending sharply upward as Australian businesses grapple with rising interest rates, high inflation, decreasing demand and declining forward orders.

CreditorWatch Chief Economist, Anneke Thompson’s view is that the RBA is unlikely to consider lowering interest rates until at least mid-2024, given core inflation remains stubbornly high.

The index results are consistent with other economic indicators such as the NAB Business Confidence Index, which is showing an accelerating decline in trading conditions.

On a regional level, the Business Risk Index data for the past 12 months has revealed that three of the five biggest movers down the index are all adjoining – Wyong, Gosford and Lower Hunter.

Key Business Risk Index insights for May:

• External administrations dipped from March to April due to seasonality but are now up 35% YoY.
• Court actions also dropped in March due to seasonality are now up a 50% YoY.
• Credit enquiries are up a massive 85% year-on-year as businesses become more nervous about the health of their trading partners and tighten credit policies.
• B2B trade payment defaults up 31% YoY, with Food and Beverage Services the number one ranked industry for probability of default by a considerable margin.
• Merrylands-Guildford and Canterbury, in Western Sydney, remain the worst performing regions in Australia for default rates.
• Casey-South in Victoria has entered the top 10 worst performing regions for the first time with a projected default rate of 7.00% over the next 12 months.
• Unley in South Australia is the region with the lowest insolvency risk (across regions with more than 5,000 businesses), followed by Norwood-Payneham-St Peters, also in SA.
• The rate of external administrations in the construction industry continue to trend upward – sitting at their highest point since June 2020.
• The rate of external administrations in the Healthcare and Social Assistance sector, while still low, has more than doubled over the past 12 months.
  
  

CreditorWatch CEO, Patrick Coghlan, says pressures are mounting on businesses across almost all industries.

“Our Business Risk Index data is showing a clear upward trend in the rate of external administrations across almost all sectors, with mining being one of the few exceptions,” he says.

“With economic conditions forecast to decline further, we encourage all businesses to perform proper due diligence on their trading partners and monitor them on an ongoing basis to ensure they don’t become an unfortunate statistic.”

CreditorWatch Chief Economist, Anneke Thompson, says trading conditions for businesses in Australia are clearly becoming more challenging.

“The latest monthly Inflation and unemployment data suggests that we will be hit with more rate rises in the coming months, adding to the challenge,” she says. “Sentiment in the business community has shifted down now that it is clear that core inflation is proving hard to tame. It is now unlikely we will see any downward movement in the cash rate until mid 2024 at the earliest.”