CreditorWatch Chief Economist, Anneke Thompson, says that while the November BRI data covers businesses across all industries, the subdued trade receivables data does mirror October’s Retail Trade data.

“Monthly turnover fell across all the major retail trade categories, with the exception of food retailing. Department stores recorded the biggest drop in turnover, at 2.4% followed by clothing, footwear and personal accessory retailing, which dropped by 0.6%.

“While we are likely to see a bump up in retail trade activity when November data is released due to Black Friday sales, it seems that interest rate rises and a general higher cost of living are now starting to be felt by both consumers and businesses. This will be positive news for the RBA, whose board members will be closely watching for all signs of a slowdown in the economy, and hopefully, a fall in the inflation rate.

“If the RBA Board sees good evidence of a slowdown in both the economy and inflation by their next meeting on the first Tuesday of February, we may just see a pause in cash rate movements. However, a lot can happen between now and then, with the decision effectively in the hands of Australian consumers.”

This month’s Westpac Consumer Sentiment Index, has shown some improvement in consumer sentiment which is positive news for the economy. Anneke said, “Westpac consumer sentiment implies that at least some consumers feel the worst of interest rises are behind us. Importantly, consumers are more confident in the job market. High employment rates are very important for overall economic stability and consumer spending, particularly in times of high inflation.”

Probability of default by region

The five regions* at least risk of default over the next 12 months are:

The five regions* most at risk of default over the next 12 months are:

* Regions with more than 5,000 registered businesses

Once again, areas with high levels of personal insolvency are most exposed to business insolvency. These areas also have a lot of self-employed people, whose personal and business expenses are more closely linked.

The areas with the lowest risk of insolvency tend to be those that are either experiencing a high level of both business and infrastructure investment (such as Adelaide City and Geelong), or are seen as very desirable places to live and visit (Yarra Ranges, Cottlesloe-Claremont, Ku-ring-gai).

Probability of default by industry

The industries with the highest probability of default over the next 12 months are:

1. Food and Beverage Services: 7.2%
2. Arts and Recreation Services: 4.6%
3. Transport, Postal and Warehousing: 4.5%

The industries with the lowest probability of default over the next 12 months are:

1. Health Care and Social Assistance: 3.2%
2. Agriculture, Forestry and Fishing: 3.5%
3. Manufacturing: 3.5%

Source: CreditorWatch risk score credit rating average probability of default by industry

Outlook

The November Business Risk Index data illustrates almost conclusively that Australian businesses will experience far more challenging conditions in 2023. We are seeing a clear rise in businesses recording trade defaults against another business, with no commensurate rise in trade activity.

Coupled with slowing retail trade data, near record-low consumer confidence and falling business confidence, the signs are all there that the RBA’s monetary policy tightening cycle is now having its desired impact. It is too early to say how hard the landing will be for the Australian economy in 2023, although conditions here certainly look brighter than in other parts of the world, which is something Australian businesses should be mindful of.

Employment is still very strong, although we are now seeing a plateau, or fall in some cases, of jobs available, and more people applying for jobs that do come up. Nevertheless, most people who want a job at the moment can get one, and incomes are rising, albeit at levels far below that of the rate of inflation.

Anecdotally, businesses are not yet in a position where they are having to laying off workers (as is happening in some parts of the world – particularly the tech sector in the US), however, it is likely, and we are hearing of businesses pausing hiring activity at least for the next few months until a clearer picture of economic conditions in 2023 materialises.

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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