Insolvencies are likely to increase in another difficult economic year ahead.
Australian businesses are set to experience an increase in insolvencies in 2017 as a result of another difficult economic year. The likely two per cent increase in insolvencies puts Australia in step with the UK and Canada, according to the Economic Outlook by credit insurance provider, Atradius.
The improving trend in the business environment across Australia and other advanced economies is expected to come to a halt. Changes in insolvencies predominantly depend on movements in the business cycle. As such, lower than expected 2016 GDP growth and largely stagnant recoveries imply a relatively stable insolvency outlook for Australia and most of the 22 advanced economies we track.
GDP growth in Australia for 2017 is expected to be 2.8 per cent, which is slightly down on the 2016 rate of three per cent. This drop in the rate of growth is partly responsible for the slightly higher insolvency forecast.
Export growth is another area that we expect to slow considerably in 2017, down from seven per cent in 2016 to just 3.6 per cent in 2017, so businesses that rely heavily on the export market will be particularly affected as trade pressures mount and prices are squeezed.
The contraction of China’s economy and the lowering of trade volumes in Asia as a whole are key factors in the expected reduction in business for Australia, given that China is our largest trading partner and the overall Asian market is hugely important to our own economic wellbeing.
With energy and commodity prices low, mainly due to reduced demand from China, and President-elect Donald Trump vowing to scrap the Trans-Pacific Partnership (TPP) regional trade agreement, the situation is only likely to get worse before it gets better.
In such an uncertain economic climate businesses should look to protect themselves. They can do this by carefully choosing which businesses they trade with, what terms they offer and, ideally, getting trade credit insurance to insulate themselves against non-payment by partners who may, themselves, be affected by the growing rate of insolvencies.
Mark Hoppe, Managing Director – ANZ, Atradius
