Almost nine in 10 (87.2%) regions around Australia will experience an increase in business failure rates over the next 12 months, according to the latest Business Risk Index from credit reporting bureau, CreditorWatch.
Queensland is forecast to see the highest rate of business failures while Western Australia is predicted to see the biggest increase in the failure rate. The analysis covers 329 regions around the nation.
Regions in Western Sydney and South-East Queensland are expected to see the highest rates of business failure over the coming year. Many businesses in these regions continue to struggle in the high interest rate environment. 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.
Commercial property prices and rents in Sydney and South-East Queensland are also relatively high, with Queensland having the added burden of construction costs, meaning it is difficult to add new supply of commercial space which would relieve pressure on rents.
At the other end of the scale, the regions expected to experience the lowest business failure rates over the next 12 months are typically in regional areas across the country that benefit from lower commercial rents, low competition among businesses, older populations and stronger local economies.
Some areas may also have experienced a small uptick in domestic tourism, as budget conscious Australians look for cheaper and better value holiday options than the traditional locations of the Gold Coast, Sunshine Coast and overseas destinations like Bali and Fiji.
On a state-by-state comparison, all states are forecast to experience an increase in the average failure rate. Queensland is expected to see the highest average rate of business failure over the next 12 months of 6%, with Western Australia predicted to experience the largest average increase in business failures. Meanwhile, Tasmania has the lowest forecast average failure rate of 4.76%.
CreditorWatch CEO, Patrick Coghlan says the data shows how tough businesses around Australia are doing right now.
“The fact that almost 90% of regions will see an increase in the rate of business failures indicates that the current pressures from interest rates, cost increases and declining consumer demand are being acutely felt right around the country – particularly those areas with younger populations and a higher proportion of businesses in high-risk sectors,” he said.
“Our hope is that the Stage 3 tax cuts will continue to boost consumer confidence to some extent, but we don’t expect a significant improvement in conditions for businesses until the impacts of one or two rate cuts are felt by households.”
CreditorWatch chief economist, Anneke Thompson believes consumer confidence is unlikely to trend upward for some time yet.
“Consumer confidence is still incredibly low, even though consumers reported to Westpac in its August survey that confidence was slightly up,” she said.