Qld set to suffer most from business failures: CreditorWatch
Regional business failures are continuing to increase with limited hope for improvement over the next 12 months, according to the CreditorWatch July Business Risk Index results.
The CreditorWatch July Business Risk Index (BRI) has revealed business failures will increase in 9 out of 10 Australian regions, with Queensland set to be the worst off.
The BRI highlighted that 87.2 per cent of regions around Australia will experience an increase in business failure rates over the next 12 months across the 329 regions the analysis covered.
Queensland is forecast to experience the largest rate of business failures and Western Australia is set to see the biggest increase in the failure rate.
CreditorWatch CEO Patrick Coghlan said the data is reflective of the tough economic climate businesses are currently facing and will continue to experience.
“The fact that almost 90 per cent of regions will see an increase in the rate of business failures indicated that the current pressures from interest rates, cost increases and declining consumer demand are being acutely felt around the country,” he said.
“Particularly those areas with younger populations and a higher proportion of businesses in high-risk sectors.”
Though Queensland has been predicted to see the highest failure rate by the BRI, all states are forecast to experience an increase in the average business failure rate.
The forecasted average failure rate for Queensland has been measured at 6.00 per cent.
Tasmania has been forecasted as the state to experience the least business failures at 4.76 per cent.
Western Australia will see the largest average increase at 1.10 per cent.
The BRI demonstrated regions in Western Sydney and South-East Queensland are also expected to see the highest rates of business failure over the coming year.
This will be caused by many businesses in these regions continuing to struggle with the high interest rates.
“Households in suburbs surrounding these areas tend to be highly indebted and on lower-than-average incomes, which means they are spending less in their local communities,” CreditorWatch said.
Regions expected to experience the lowest business rate failures are in regional areas across the country.
CreditorWatch said this is because regional areas benefit from lower commercial rents, low competition among businesses, older populations and stronger local communities.
The agriculture sector also isn’t as impacted by higher interest rates as “the goods produced are largely non-discretionary and demand for them increases broadly in line with population growth which has been strong.”
CreditorWatch chief economist Anneke Thompson said consumer confidence is not expected to “trend upwards” for some time.
“Consumer confidence is still incredibly low, even though we reported to Westpac in its August survey that confidence was slightly up,” she said.
“While consumers are now less fearful of an increase in interest rates and also report a small positive sentiment increase from tax cuts, the increase in confidence is not nearly enough to suggest that household consumption will recover any time soon.”
Coghlan said CreditorWatch is hopeful the stage 3 tax cuts will boost consumer confidence to some extent but does not expect an improvement in business conditions until rate cuts are felt by households.
Other major findings from July’s BRI found business orders have remained flat.
“The average value of invoices held by businesses has dropped 51.5 per cent over the year to July 2024, indicating that businesses are ordering significantly less from suppliers as consumer demand falls away,” CreditorWatch said.
According to CreditorWatch the operating environment in Australia will remain challenging until the first quarter of 2025.
