Insolvencies up as JobKeeper end, but green shoots still show in Australian economy

by Mike Wood10 Jun 2021

Creditorwatch, one of Australia’s experts on administrations, has offered insights on the effect of the end of JobKeeper and the recovery of the Australian economy after the COVID-19 pandemic.

The Business Risk Review, their monthly publication that takes the temperature of the SME sector, has shown a 24% rise in insolvencies and a 9% increase in the number of credit defaults in the last three months.

While the top level stats are poor, the underlying trend is, in general, positive.

“The key thing is that the broad results of the Business Risk Review for May were pretty solid and in some instances quite strong,” said Harley Dale, Chief Economist at Creditorwatch. “”We've got a profile where defaults are falling and inquiries are rising.”

“Industry sectors like retail and accommodation are starting to pump along nicely compared to where they were in 2020 and earlier this year. We've got a long way to go but the results are starting to show some trends, particularly for credit inquiries, that are really positive to be looking at in the middle of this year.”

The end of the JobKeeper scheme is yet to kick in as far as administrations are concerned, according to Dale.

“We worked out pretty early on that there wasn't going to be a fall off a cliff when JobKeeper ended, but we've also only got two months’ results,” he said.

“We probably need to see the entire quarter and probably the September quarter as well to get a true read on how the economy is fairing. It’s a bit too soon yet, even if some of the signs are promising.”

Creditorwatch have spoken in the past about ‘zombie businesses’, SMEs that were propped up by JobKeeper that would otherwise have failed. Despite predictions to the contrary, we are yet to see a huge spike in insolvencies in this kind of business.

Dale said that it was too early to tell whether zombie businesses would fall over now that the subsidy is gone.

“We'll see over the coming months,” he said. “You'll probably see two bottom tier sets of businesses: those zombie ones that try to hang on but simply can't, and those that hang on but have to deal really closely with banks and creditors to keep themselves alive but will crawl out OK.”

“Then you'll have those that realise that they're in reasonable shape even without JobKeeper, and some of them may even thrive because they've become leaner, meaner and developed strong business models over the last 12 months.”

“There's going to be these different categories of businesses and that is, unfortunately, going to include a category where we continue to see businesses fall over in the next six months.”