CreditorWatch Chief Economist Ivan Colhoun notes the 2025 outlook is likely to remain challenging until the RBA delivers some interest rate relief. This was previously not expected before May 2025, but the December RBA Board Meeting has opened the door to an easing in February provided the Board gains greater confidence in its inflation forecasts from the Q1 CPI at the end of January and other data releases.

“An expected easing cycle over 2025 will be helpful for households and businesses but is only expected to be moderate in size, without a more significant slowing in the labour market, which is not currently signalled,” he says.

“Businesses and consumers will still need to adjust to the elevated cost of doing business and cost of living, as well as current interest rates, for some months.

“These fundamentals are reflected in rising B2B payment default rates and, along with increased ATO enforcement activity, will continue to lead to increased insolvencies. Lower commodity prices, changes to government policy on foreign students and immigration are also likely to lead to less favourable conditions in the Mining and Education sectors and to slower population and demand growth in general.

“President Trump’s proposed significant tariff increases add another considerable layer of uncertainty to the overall business outlook globally and in Australia, especially for the Manufacturing, Wholesale and Retail Trade and Transport and Warehousing sectors.”

HOSPITALITY INDUSTRY UNDER PRESSURE

At an industry level, CreditorWatch’s data indicates the hospitality industry is under greater pressure than other industries in a number of key areas.

Food and Beverage Services leads the industry rankings for the business failure rate, late payments, ATO tax debt defaults over $100,000 and is ranked second for payment defaults.

The ABS retail trade data for cafes, restaurants and takeaway food services shows that spending at these outlets has been largely flat since the beginning of 2023. CreditorWatch expects spending to remain relatively subdued over the current Christmas/New Year period, meaning that these businesses will, begin the new year without the full seasonal cash injection that they have traditionally relied upon.

Businesses in the sector have been struggling to maintain profitability under ongoing cost pressures, higher interest rates, wage increases, labour shortages and softer consumer demand. Cost-of-living pressures have pushed some households to tighten purse strings and cutback on discretionary spending, which the hospitality industry is heavily reliant on.

Interest rate relief to potentially counterbalance some of these negative fundamentals may begin in February, adding to the recent significant improvement in consumer confidence as the 1 July income tax cuts and government cost of living relief payments benefit consumers’ take-home pay.

These positive developments will still take some time to show up in reduced payment defaults and arrest current insolvency trends.

Business Failure Rate

CreditorWatch defines a business failure as voluntary and involuntary administrations, voluntary business deregistrations (closures) and ASIC strikeoffs. There are clear rising trends for both involuntary administrations and ASIC strikeoffs, with the involuntary administration rate for private companies now considerably above pre-COVID levels.

As with other metrics, the business failure rate (the chance of a business being wound up or closing voluntarily) is particularly high in the Food and Beverage sector.