Business indicators point to further decline in revenue, CreditorWatch warns
A significant drop in the average value of business invoices is a major concern for the Australian economy, the credit agency cautions.
The latest CreditorWatch Business Index has revealed the average of business invoices has fallen by almost a third over the past 12 months.
The substantial drop in the value of invoices means Australian businesses are ordering less each month leading to a fall in revenues throughout the supply chain, the credit rating agency said.
CreditorWatch’s other key business indicators have also deteriorated including trade payment defaults, external administrations and court actions have also deteriorated.
Businesses to business trade payment defaults continue to trend upward with an 86 per cent year-on-year increase.
External administrations have increased 10 per cent year on year, with most industries experiencing an increase.
CreditorWatch also expects the national default rate prediction for the next 12 months to increase to 5.76 per cent, up from the current rate of 4.76 per cent.
CreditorWatch chief executive Patrick Coghlan said the decline in the value of invoices over the past year has been consistent and severe and is a “major concern for the economy”.
“This deterioration is reflected in our other key business indicators: payment defaults, external administrations, credit enquiries and court actions,” said Mr Coghlan.
“It will be the industries most exposed to consumer discretionary spending such as hospitality and retail that will experience the toughest conditions across the second half of this year,” he said.
Food and beverage, as well as construction, continue to feature in the top three industries with the highest insolvency rates.
Insolvency rates in the mining industry have also increased, with the mining sector highly susceptible to commodity price volatility, environmental regulation and resource depletion.
Areas with an older median age present the lowest risk of business insolvency, as these businesses are likely to have lower debt levels and more established income streams, according to the CreditorWatch Business Risk Index.
Areas with the highest risk of insolvency not only tend to have younger populations, but also business profiles that are more strongly weighted to construction, tourism and retail trade.
The variance between the areas with lowest risk and highest risk of business failure is also expected to widen.
Currently, the difference between these two is 234 basis points (bps), however, by July 2024, this spread is forecast to widen to 308 bps, CreditorWatch said.
There are major differences in how the economic downturn is expected to impact locations around Australia.
CreditorWatch chief economist Anneke Thompson said the business risk index data supports the assessment of the RBA that economic growth is going to slow considerably over the second half of calendar year 2023.
The RBA forecasts GDP to slow to 0.9 per cent over the year to December 2023, down from 1.6 per cent over the year to June 2023.
“Household consumption has already slowed considerably, with the slowdown expected to worsen as more households come off fixed rate home loans,” said Ms Thompson.
“Household consumption is expected to have only grown by 1.6 per cent to June 2023, and is forecast growth for the year to December is 1.3 per cent.”
CreditorWatch expects the operating environment for Australian businesses will continue to have an elevated level of risk as it settles into a period of higher interest rates, probably for the next year.
“Australian consumers’ cash reserves are falling away dramatically, and this slowdown in spending eventually works its way through the wider economy,” it said.
“Population growth continues to have a positive impact on the Australian economy, driving demand for education, health and professional services. However, even with strong population growth, retail trade volumes are in retreat, highlighting just how much spending by Australians has decreased.”
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