Australian business failures surge despite global recovery

Australia has bucked global trends by recording a step rise in business failures in the June quarter, according to a new report.

The research, by credit agency Dun & Bradstreet, compared Australia’s 12% increase in business failures unfavourably with other countries.

Across the world’s advanced economies, business collapses fell by 5.7% in the June quarter, with particularly sharp declines in China and South Africa.

European countries struggling under record debt, such as Spain, Ireland and Italy, were the only nations, other than Australia, to record a rise in business failures during the quarter.

According to D&B’s global insolvency index, Australia is now 23 points higher than the US, 30 points above the UK and level with the heavily indebted European nations.

The manufacturing sector appears to be suffering particularly badly in Australia, with failures rising 60% since 2008. Across the world, the rate of insolvencies in the industry dropped by 15% in this period.

Christian, CEO of D&B, says: “The rise in insolvencies may have reflected knock-on, lagged effects of the 2008-09 global financial crisis as well as declines in business credit and relatively higher interest rates.”

“Outside the mining sector, sentiment is generally still poor and the strong Australian dollar is straining profits.”

“Insolvency activity in Australia is up across almost all sectors with a significant deterioration in retail and service sector failures, reflecting subdued confidence.”

“There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvency levels. The global economic recovery is running out of steam.

“With growth expected to remain muted for the rest of the year, we are likely to see this further dent corporate profitability and payments performance, raising the risk of corporate insolvency.”