Insolvencies are high, and likely to rise further
Business failures and B2B payment defaults have been at or near record highs since mid2025, and February saw a sharp rebound in insolvency activity. Our modelling warns that this uptick is only the beginning, as the recent energy shock places additional strain on alreadystretched balance sheets.
The catalyst is the sudden spike in global oil prices following conflict in the Middle East. The rise, already within the historically recession-linked range of 50–70% – poses a significant and sustained threat if elevated for more than several months. As Ivan Colhoun, CreditorWatch’s Chief Economist, notes, previous periods marked by this scale of energy price escalation have tipped economies into recession.
Australia in the ‘Recession Risk Zone’
The RBA’s February rate rise – and the possibility of another soon – adds further pressure. With inflation proving stubborn and global volatility intensifying, Australia now sits firmly in what CreditorWatch describes as the “recession risk zone”.
Compounding the challenge is the growing probability of genuine fuel supply disruptions, reminiscent of the acute shortages experienced during the COVID-era supply chain shocks. A prolonged closure of the Strait of Hormuz – through which 20% of global crude and LNG passes – could push prices dramatically higher and disrupt essential economic activity.
Essential industries are now the most exposed
One of the most significant insights for credit teams is that the sectors with the highest strategic importance are now those facing the greatest stress. Industries with heavy diesel, petrol, gas and electricity consumption – including agriculture, mining, manufacturing, construction and road freight transport – are now absorbing rapid and substantial cost increases.
These pressures are being transmitted rapidly through supply chains. Higher freight, energy and input costs flow directly into wholesale prices, contract variations and credit terms – creating a cascading risk effect across dependent industries.
Road Freight Transport: The critical pressure point
No sector illustrates the challenge more clearly than road freight. With fuel accounting for up to 40% of operating costs, the 36% surge in diesel prices over just two weeks has hit operators hard. BRI data shows 7.1% of road transport businesses closed in the past year, making it one of the most stressed parts of the economy.
This is particularly concerning for credit teams as freight sits at the centre of the Australian supply chain. When transport operators become distressed, the risk quickly spreads to manufacturing, retail, agriculture and construction.
Manufacturing: Payment arrears rising
Construction: Hit from all directions
Agriculture and Mining: Mixed but rising risk
Payment stress flashing red
ATO tax defaults surged at the end of 2025, and B2B defaults – one of CreditorWatch’s strongest leading insolvency indicators – are rising across multiple sectors. Historically, these metrics show distress well before insolvency numbers peak, suggesting more failures are likely over the next 6–12 months.
For credit teams, this means tightening monitoring, adjusting credit policies and preparing for higher debtor risk – especially among SMEs with thin cash buffers.
The Outlook: High alert for credit professionals
The convergence of inflation, energy volatility and interest rate pressure is creating one of the toughest operating environments businesses have faced in years. SMEs remain the most vulnerable.
If oil prices remain above US$125-150 for several months, recession odds rise sharply, and business failures with them. A swift resolution to the conflict would obviously be the best outcome. Until then, credit teams should prepare for:
- Higher trade credit risk across fuel-exposed industries
- More frequent payment delays and arrears
- Increased insolvency activity through 2026
- Supply chain disruptions that spill over into credit performance
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