Credit agency CreditorWatch warns of recovery reality check

The wind back of stimulus measures has hurt small and medium businesses more than expected, a new assessment has found.

The wind back of stimulus measures has hurt small and medium businesses more than expected.

Australia’s rapid economic recovery from the impact of the Covid-19 pandemic last year may be stalling, according to an analysis by credit reporting agency CreditorWatch.

CreditorWatch’s latest Business Risk Review found the wind back of stimulus measures has hurt small and medium businesses more than expected.

Its latest Business Risk Review found that credit defaults increased by 9 per cent in the three months to May, against the three months to February this year, and external administrations rose by 24 per cent over the last three months.

CreditorWatch chief executive Patrick Coghlan said the figures were to be expected as Australia’s economy starts to return to a level of normality. Since April last year, defaults have remained 50 per cent lower than pre-Covid figures, largely due to government stimulus support.

Mr Coghlan said the focus now will be on next steps to get the numbers back to pre-pandemic levels.

“We’ve been saying for some time we won’t be able to get a true picture of the economic health of the nation until federal government stimulus measures, such as JobKeeper, have ended and their impact has stopped artificially propping up some businesses,” he said.

“Early signs from the Business Risk Review suggest there will be a shake-out of poorly-performing businesses over the coming two quarters. The May 2021 CreditorWatch Business Risk Review is one of the first red flags in that regard.”

However, there was some good news with CreditorWatch finding the number of credit inquiries has risen for eight months straight. In May, the number of inquiries was 36 per cent higher than a year earlier.

CreditorWatch chief economist Harley Dale said it was an encouraging result.

“It’s not difficult to find good economic news for May 2021, such as credit inquiries, but the metrics behind that message appear to be losing momentum,” he said.

The Reserve Bank’s statement for its June board meeting indicated the bank is expecting extremely healthy economic growth of 4.75 per cent this year, dropping to GDP growth of 3.5 per cent in 2022.

The unemployment rate is sitting at a relatively benign 5.5 per cent, a figure that’s expected to fall to 5.0 per cent at the end of this year.

Mr Dale described the findings of the May CreditorWatch Business Risk Review as mixed.

There was a 0.3 per cent drop in company profits following the end of federal government Covid stimulus measures but credit defaults were 43 per cent lower over the three months to May 2021 compared to the same period last year.

However on a three-monthly comparison, defaults are up by 9 per cent against the three months to February this year.

The number of external administrations fell by 6.5 per cent in May 2021 compared to a year earlier and were down by 17 per cent over the three months to May 2021 compared to the same period last year.

“Annual figures are an improvement on this time last year, which is to be expected given we were only just emerging from the first of the serious pandemic lockdowns in mid-2020,” Mr Dale said.

“But more recent numbers suggest a weakening economy post-JobKeeper. Only time will tell how long this recent fragility is likely to last.”