Australian businesses have experienced both triumphs and setbacks in 2022. On the plus side, employment has been robust, with approximately 482,000 more people employed in Australia at the end of the year than at the end of 2021.
In October 2022, the unemployment rate fell to a near-record low of 3.4 per cent. According to the NAB’s Business Conditions Index, businesses have been operating near-record capacity utilisation, implying steady employment in the first quarter of 2023.
External administrations and court actions, both indicators of business insolvency, have increased but remain lower than pre-COVID levels, reflecting strong demand conditions that have helped most businesses maintain consistent cash flow.
However, the economy has also faced challenges in the form of rising prices in almost all categories. Inflation remains a global issue, though there are early indications that it may have peaked in Australia and the United States. Consumer confidence fell following the Reserve Bank of Australia’s May meeting, and retail trade figures show that consumers are cautious.
“The past year has been a rollercoaster ride for the Australian business community, with many industries experiencing high levels of customer demand while also grappling with challenges such as labour shortages, supply chain issues, inflation, and fluctuating energy prices,” writes CreditorWatch Chief Economist Anneke Thompson.
The food and beverage, travel, tourism, and retail trade sectors have benefited from easing restrictions and the return of dining and travel to pre-COVID levels. However, these industries, as well as others, have had to navigate a range of challenges to keep up with demand and maintain stability.
The good
The Australian economy has seen positive employment, business conditions, and insolvency developments in 2022. While external administrations and court actions have increased, they remain below pre-COVID levels due to strong demand conditions helping to maintain steady cash flow for most businesses.
The bad
Inflation, which has been a problem globally, may have peaked in Australia and the United States, though it remains an issue. Consumer confidence in Australia took a hit after the Reserve Bank of Australia’s May meeting, and retail trade figures have shown signs of caution among consumers.
B2B trade payment defaults, a measure of businesses failing to make payments to other businesses, have been steadily rising since February 2022 and are expected to rise further in 2023. These trends indicate that the economic environment may face challenges in the coming year.
Despite moving past lockdowns, the visitor behaviour in the central business districts (CBDs) of Australia’s capital cities remains diverse. Eastern seaboard CBDs have seen fewer office workers during weekdays, while weekends are busy.
There was less disruption to offices in Adelaide and Perth, which is reflected in the changes in the Business Risk Index in 2022. Adelaide and Perth now have a lower probability of default than the eastern seaboard cities.
Melbourne and Sydney have the highest probability of default, with Melbourne surpassing Brisbane. All CBDs are expected to face more challenging economic conditions in 2023.
Way ahead
The operating environment for businesses is expected to be more challenging in 2023 as they face higher interest rates, wages, input costs, and falling consumer demand. However, a slowdown in the economy is necessary to bring down inflation, and Australia is in a relatively strong position.
While GDP growth is expected to slow, a recession is not currently expected. Strong employment will also provide some support, as borrowers will likely be able to make repayments even if they need to cut back on spending. Businesses may also see increased slack in the labour force, which can help improve efficiency.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
