Sign of life for Aussie economy
The worst could be over for struggling businesses in the hospitality and construction sectors, as the number of insolvencies dropped in May.
Two key measures of business stress – insolvencies and business-to-business payment defaults – are easing, CreditorWatch data shows.
Overall, insolvencies are down 0.9 per cent from April to May and have now dropped 12 per cent from their November peak, while business-to-business payment defaults dipped 11.8 per cent in May and are down 18.3 per cent from their peak in December.
The major falls were in the discretionary facing sectors, including hospitality and construction.
The falls come as the same pressures impacting households – inflation, higher interest rates and taxes – begin to ease on businesses.
CreditorWatch chief executive Patrick Coghlan said insolvencies and trade payment defaults had levelled out, albeit at quite elevated levels, suggesting some of the pressures on businesses from higher costs and constrained consumer spending may be beginning to be balanced out.
But he warned that businesses, particularly in the hospitality sectors, are still struggling to pass on higher input costs to customers.
'This levelling off of insolvencies has been long awaited and is very welcome, but we need to remember that several industries still face significant challenges, particularly those exposed to discretionary spending,' Mr Coghlan said.
'If the price of a sandwich at a cafe goes up by three or $4, people can very easily go elsewhere or bring their lunch from home.'
The decline in hospitality businesses facing insolvency follows CreditorWatch data back in October 2024 that showed one in six businesses were rated at high risk of collapsing.
The turnaround follows several tailwinds for these consumer facing businesses, including
two interest rate cuts from the Reserve Bank since February, lower taxes for households starting in July 2024 as well as a further lifting in the minimum wage from July 1.
CreditorWatch chief economist Ivan Colhoun said this increase in payments would come with mixed reactions from businesses in the hospitality sector.
'The good thing is that we will likely see these funds recycled into the economy,' he said.
'Interest rate relief by the RBA, as inflation has moderated, should also improve cash flow a little for both consumers and businesses alike.
'(But) the Fair Work Commission's decision to increase the national minimum wage from 1 July 2025 will benefit consumers but apply further pressure on businesses, particularly in retail and hospitality.'
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