Tariffs threaten to reverse bounceback in business conditions
Businesses felt a reprieve in early 2025 following a difficult period, but analysts say this could be short-lived as tariff policies impede global economic growth.
CreditorWatch’s trade payment defaults and ASIC’s measure of companies entering insolvency for the first time fell sharply in early 2025, signalling that business conditions may have turned a corner.
“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 the year,” CreditorWatch chief economist Ivan Colhoun said.
“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.”
This reprieve could be brief as US tariff policies begin to impact global markets, CreditorWatch warned.
“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,” it said in a press release.
According to CreditorWatch, US President Donald Trump’s “extremely broad” tariff regime will lead to higher prices in the US, a stronger US dollar and a shift towards domestic production.
While Australia was unlikely to feel strong direct impacts from the tariffs due to its trade deficit with the US, it may see goods of other tariffed countries in its own markets, potentially at lower prices. The Australian dollar would likely be weakened compared to the US dollar.
Furthermore, supply chains and trade flows may be rerouted, adding to shipping costs.
“It’s too early to be definitive on the scale of the impact because the policies are still being rolled out, however, they are generally expected to add to uncertainty and costs at the expense of weaker growth,” CreditorWatch said.
CreditorWatch data also indicated that the hospitality sector is still being hit hard by the cost-of-living crisis, with a record-high 9.2 per cent of businesses becoming insolvent, closing voluntarily or being struck off by ASIC in the 12 months to 31 January.
According to CreditorWatch, lower inflation would be the most important development leading to a positive outlook in this sector. Many hospitality businesses have low levels of cash reserves and are being squeezed by high operating costs while their customers reduce spending due to cost-of-living pressures. Lower interest rates will also benefit some businesses and customers in the sector.
“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,” Patrick Coghlan, chief executive of CreditorWatch, said.
