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Interest Rate Rise to Put Extra Pressure on Struggling Australian Businesses

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Small businesses across Australia would have to endure extra pressure after a tough start to 2022 due to the Omicron variant if banks raise their interest rates, CreditorWatch found.

The Australian credit reporting agency said that the latest results of its monthly business risk index projected a gloomy prospect for the business community and suggested that the Australian economy had to make more progress before getting rid of the pandemic’s impacts.

“Pressure is mounting for interest rates to rise,” CreditorWatch CEO Patrick Coghlan said.

“If that happens, it will be another hit to small businesses. CreditorWatch is expecting business insolvencies to grow steadily this year, even if the RBA doesn’t hike interest rates.”

Reserve Bank governor Philip Lowe issued a warning on Feb. 2 that it was plausible for the central bank to push up the cash rate this year.

A huge jump of 58 percent in business court actions over the three months to January 2022 compared to the same period in 2021 foreshadowed that the economy would witness a steady rise in insolvencies over the year.

According to CreditorWatch, this trend showed that large creditors, including banks and the Australian Taxation Office, had restarted collecting debts after a postponement during the height of the pandemic.

small business australia
Small business owners Sal Quattroville with Pasta maker Vinicio Rinaldi in Sydney, Australia, Oct. 31, 2017. (Brook Mitchell/Getty Images for American Express)

While the report encompassed a state-by-state analysis on defaults, it also provided insight into the best and worst-performing industries.

Western Australia was the best-performing state with the support of its mining and agribusiness sectors. On the other hand, Victoria and New South Wales struggled to bounce back from their prolonged lockdown periods in 2021.

The report also found that the following industries had the highest possibility of default over the next 12 months: accommodation and food services; information, media and telecommunication; and financial and insurance services.

Health care and social assistance, mining; agriculture; forestry and fishing are industries that had the lowest probability of bankruptcy.

In the latest business survey by National Australia Bank released on Feb. 8, business confidence recovered sharply in January as the Omicron variant cases quickly reached their peak, after the economic indicator had tumbled in December when the new virus strain appeared.

On the contrary, the ANZ-Roy Morgan consumer confidence index dropped in the week commencing Jan. 31 on the probability of an interest rate hike in 2022.

Meanwhile, the more in-depth monthly Westpac-Melbourne Institute consumer sentiment index dipped by 1.3% to 100.8 in February from 102.2 in January.

Alfred Bui

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Alfred Bui is an Australian reporter based in Melbourne and focuses on local and business news. He is a former small business owner and has two master’s degrees in business and business law. Contact him at alfred.bui@epochtimes.com.au.



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