AUSTRALIA | New business data suggested that 10.6 percent of hospitality outlets have closed over the last 12 months, described as deeply worrying.
CreditorWatch’s October Business Risk Monitor reveals a turnaround in the prospects for industries exposed to consumer discretionary spending, with retail being the exception. Hospitality, Construction and Arts and Recreation Services are all seeing a moderation in business closures, indicating that interest rate relief is being felt by households and they are finally prepared to increase discretionary spending.
This is consistent with consumer spending, which increased 0.7 percent in October, and the Westpac Consumer Sentiment Index, which jumped 12.8 percent from October to November, its first positive reading since February 2022.
Despite the drop, closures in the Cafes, Restaurants and Takeaway Food Services category remain worryingly high, with 10.6 percent of businesses closing in the 12 months to November. Bars, pubs and clubs have fared better than good services outlets over the past two years, supported by poker machine revenue.
Pubs and clubs also tend to be larger businesses than cafes, restaurants and takeaway outlets, so are better able to weather economic downturns. However, all hospitality categories sit well above the national average for business closures (5.4 percent).
“We’re finally seeing the early signs of a turning point for industries most exposed to discretionary spending, but the data makes one thing abundantly clear: this recovery is fragile,” said CreditorWatch CEO Patrick Coghlan.
“While consumers are beginning to open their wallets again, many businesses, particularly smaller operators in hospitality and retail, remain under intense pressure. The sharp rise in trade payment defaults and stubbornly high closure rates tell us that now is not the time for complacency. Businesses need to stay vigilant, understand their credit risk exposure, and use timely data to protect cash flow as the economy transitions into this next phase.”
CreditorWatch Chief Economist Ivan Colhoun said that, early this year, it was suggested that insolvencies may level out as the benefits of the income tax cuts in mid-2024 flowed through the economy. That assessment has largely been correct.
“The RBA’s latest economic forecasts provide mixed news for both businesses and consumers. Because of the surprise jump in inflation revealed in Q3, there will be no further near-term interest rate reductions. At the same time, the RBA anticipates that the unemployment rate will broadly remain very low at 4.4 percent for the next two years as the economy expands at around 2-2.25 percent in real terms.”
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