High interest rates and rising prices of everything from copper wire to the office coffee are starting to kill off Australian businesses, with insolvencies at a new high, research shows.
In the year to May, external administrations increased 38 per cent on average across all industries, reflecting stubborn price pressures, higher interest rates and squeezed margins from consumers reining in spending.
Insolvencies have increased by 38 per cent in the year to May in a sign business conditions are deteriorating. Natalie Boog
Small businesses in electricity, gas and waste services drove the increase in the insolvency rate, with the broader category clocking an 89 per cent increase in firms entering external administration since last year.
Deteriorating conditions in the business sector, highlighted in CreditorWatch’s business risk index, follows the Reserve Bank of Australia adopting a more hawkish footing on future interest rate moves.
CreditorWatch chief executive officer Patrick Coghlan said multiple interest rate hikes and persistently high inflation had forced consumers at all income levels to cut back on spending.
“We don’t expect a meaningful turnaround in consumer confidence until the impact of at least two rate cuts has been felt, which won’t be until well into 2025,” he said.
Businesses failures, which include insolvencies, closures, deregistrations and strike-offs by the financial regulator, continue to be dominated by food and beverage services firms.
Business-to-business trade payment defaults also hit a record high, which is a metric strongly linked to business failures and points to cash flow problems.