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Business Risk Review: May 2021

Is the COVID recovery losing steam?

High level statistics from Business Risk Review May 2021, compared to April 2021

  • Credit enquiries rose by 4.3%
  • Court cases dropped by 28.5%
  • Payment defaults rose by 9.8%
  • External administrations rose by 3.1%

Read the media release

After months of positive economic news, there are now clear signs the economic recovery may have hit a serious snag, with results for the May CreditorWatch Business Risk Review suggesting the economic recovery is losing momentum.

We’ve been saying for some time we won’t be able to get a true picture of the economic health of the nation until federal government stimulus measures, such as JobKeeper, have ended and their impact has stopped artificially propping up some businesses,” said Mr Patrick Coghlan, CEO, CreditorWatch.

Early signs from the Business Risk Review suggest there will be a shake-out of poorly-performing businesses over the coming two quarters. The May 2021 CreditorWatch Business Risk Review is one of the first red flags in that regard,” he said.

“It’s not difficult to find good economic news for May 2021, such as credit enquiries, but the metrics behind that message appear to be losing momentum,” said CreditorWatch Chief Economist, Mr Harley Dale.

Credit enquiries still trending up

It is encouraging to see that the number of credit enquiries has risen on an annual basis for
eight months straight. In May 2021, the number of enquiries was 36 per cent higher than a
year earlier – a very encouraging result for business investment.

But credit defaults trend south on recent numbers

Credit defaults are 43 per cent lower over the three months to May 2021 compared to the
same period last year – a great result. Yet on a three-monthly comparison, defaults are up
by nine per cent against the three months to February this year.

Short-term external admin figures also take a turn for the worse

The number of external administrations fell by 6.5 per cent in May 2021 compared to a year
earlier and were down by 17 per cent over the three months to May 2021 compared to the
same period last year. The sting in the tail is that administrations are up by 24 per cent over
the last three months

Major cracks appear in post Job-Keeper business recovery

The second post JobKeeper update for the CreditorWatch Business Risk Review (BRR), for May 2021, has some bright spots which are, unfortunately, overshadowed by a dark cloud.

While it is important to celebrate the over-achievement of the Australian economy in 2020/21, relative to initial expectations. It is equally important not to exaggerate weaker results. The May CreditorWatch BRR highlights a third play – we are going to get negative news and we must confront and digest it.

Credit defaults increased by nine per cent against the three months to February this year and external administrations rose by 24 per cent over the last three months.

CreditorWatch has been noting for some time that the June and September quarters will reveal the true nature of post JobRecovery conditions, and the May BRR reinforces that point. April was one month and it was rather good. May was another single month which was bad. We all just need to stay alert to upcoming economic, anecdotal, and social updates which will increasingly open the front curtain to a complete stage over approaching months.

In the meantime, key sectors to keep an eye on include: 

  • Healthcare & Social Administrative Assistance
  • Construction
  • Wholesale Trade
  • Information, Media and Telecommunications

The weather is not all bad.

The number of credit enquiries was up by thirty-six per cent in May this year compared to May 2020. Enquiries are up by thirty-nine per cent over the three months to May compared to the three months to February 2021, while the May 2021 ‘quarter’ shows a rise of 52 per cent compared to the same period last year.

The number of external administrations appears to be levelling off nicely. Administrations are down by 6.5 per cent compared to May 2020 and that is a fifteenth consecutive decline. The three eastern seaboard states are largely responsible for the outcome. On a quarterly basis the number of administrations fell by seventeen per cent in the three months to May 2021 when matched against the same period last year.

Meanwhile the number of defaults has straightened its back in recent months and compared to mid-2020 COVID times, looks promising. Defaults fell by forty-seven per cent in May 2021 compared to a year earlier, although May 2020 was not exactly the Australian economy’s most crash hot month last year. Over the three months to May 2021 defaults fell by forty-three per cent compared to the same period last year yet increased by nine per cent compared to the three months to February 2021.

We need to be cautious in interpreting brighter results for credit enquiries, external administrations, and defaults. We need to see consistent evidence of positive momentum through the remainder of 2021. CreditorWatch analysis suggests the jury is still out on that.

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