Business Risk Index for January 2025
The January results reveal positive signs for Australian businesses at the end of 2024 and early 2025. However, the improvements are likely to be short lived, with the proposed tariff regime of the Trump administration expected to hinder growth, particularly for export-reliant sectors such as manufacturing and transport.
Both CreditorWatch’s proprietary trade payments defaults series (B2B reports of non-payment) and the number of first-time insolvencies reported by ASIC dropped relatively sharply in January, after adjustment for seasonality. Trade payment defaults were at the lowest level since September last year, while first-time insolvencies were the lowest since February 2024.
At the industry level, CreditorWatch’s data shows the Food and Beverage Services sector is most significantly bearing the brunt of cost-of-living pressures with 9.2% of businesses becoming insolvent, closing voluntarily or being struck off by ASIC in the 12 months to 31 January – a record high. Food and Beverage Services, unsurprisingly also leads the industry rankings for late payments and ATO tax debt defaults over $100,000.
From a regional perspective, the highest risk regions in January were in Western Sydney and South-East Queensland, while the lowest risk regions are concentrated around inner-Adelaide and regional Victoria. Adelaide also continues to show the lowest forecast failure rate among the capital city CBDs (5.01%), followed by Perth (5.21%), Melbourne (5.93%), and Sydney (6.07%).
CreditorWatch Chief Economist, Ivan Colhoun says, “after tough conditions during much of 2024, during which insolvencies, late payment times and trade payment defaults all rose, the data suggests Australian businesses had a slightly better end to year”.
“Positive developments in recent months include a strengthening in retail sales and consumer confidence, likely reflecting the continuing flow-through of the 1 July 2024 tax cuts to the economy, cost of living support and an ongoing strong labour market.”
CreditorWatch CEO, Patrick Coghlan says the business community is in desperate need of relief from interest rates and cost increases.
“The signs are good that we have seen a levelling off of insolvencies and B2B payment defaults,” he says. “Australian businesses have been doing it tough for a long time now, so we hope that the impacts of this week’s rate cut and the easing in inflation will quickly flow through to them. The big unknown, of course, is the impact of the Trump administration’s tariff regime.”
Outlook
The RBA and economists are forecasting a near perfect soft landing for the economy this year. Inflation should moderate sufficiently to allow interest rates to be reduced moderately, which in turn should see growth pick up modestly and ensures the unemployment rate remains very low by historical standards.
Slower population growth, as a result of the government’s policies on foreign students and migration, is likely to act as a drag on growth against the positives of lower interest rates and continuing flow through of the July 2024 tax cuts into the economy.
As noted earlier, the largest uncertainty for businesses and the economic outlook is the effects of Mr Trump’s policies, especially his proposed major imposition of tariffs very broadly. These have the potential to slow growth globally and raise prices in the US, preventing or delaying further interest rate cuts there. They could even reverse previous cuts if inflation re-accelerates in a sustained way.
Supply chains and shipping costs could be significantly impacted, while other major countries might divert some goods subject to US tariffs to other markets including Australia at discount prices for a time. Overall, added uncertainty and, potentially, cost increases are the likely outcomes if the proposed widescale tariff policy is enacted. That will add additional pressures on some businesses especially in the manufacturing sector.
Business Risk Index for January 2025 Summary Written by Indusrty Partner CreditorWatch
