Business is off to a bright start in 2025, but worries continue

Australian businesses have kicked off 2025 on a stronger footing, with new data from CreditorWatch’s Business Risk Index (BRI) showing a drop in trade payment defaults and first-time insolvencies.

The numbers offer a welcome reprieve after a tough 2024, but economic uncertainty, particularly around potential US trade tariffs, is keeping business owners on edge.

Improved conditions- for now

CreditorWatch’s January data paints a picture of improvement for businesses, with trade payment defaults at their lowest level since September and first-time insolvencies at their lowest since February 2024. A boost in retail sales, stronger consumer confidence, and cost-of-living relief measures from last year’s tax cuts have all played a role in steadying the ship.

Adding to the optimism, the Reserve Bank of Australia (RBA) has cut interest rates for the first time in five years, bringing them down to 4.1 per cent.

CreditorWatch CEO Patrick Coghlan is hopeful that lower borrowing costs will offer struggling businesses some much-needed breathing room.

“The signs are good that we’ve seen a levelling off of insolvencies and B2B payment defaults,” he said. “Businesses have been doing it tough for a long time, and we hope the benefits of lower rates and easing inflation flow through soon. The big unknown, of course, is the impact of the Trump administration’s proposed tariff regime.”

Tariff troubles ahead?

With the possibility of broad and high US tariffs under the Trump administration, Australian manufacturers and exporters could face new hurdles. While Australia may be spared direct tariffs due to its trade deficit with the US and strong alliance, there’s still the potential for ripple effects.

Tariffed goods from other countries could flood the Australian market at lower prices, while supply chain disruptions could drive up shipping costs. If enacted on a large scale, the policy could lead to weaker global growth, adding more pressure on Australian businesses already dealing with high costs.

Not all good news- hospo businesses struggle remains

Despite the overall improvement in business conditions, hospitality businesses remain under significant strain. The Food and Beverage Services sector has hit a record high for business failures, with 9.2 per cent of businesses closing or being struck off by ASIC in the past year.

Many venues, particularly in city centres, are feeling the pinch from higher operational costs (rent, wages, and food prices) while also seeing lower customer spending due to cost-of-living pressures. The rate cut may provide some relief, but a more substantial drop in inflation is what’s really needed to turn things around.

Regional winners and losers

CreditorWatch’s data also highlights major differences across Australia’s regions:

• High-risk areas: Western Sydney and South-East Queensland remain hotspots for business failures, particularly in construction-exposed suburbs like Bringelly-Green Valley, which has a forecast 7.8% failure rate over the next year.
• Low-risk areas: Inner-city Adelaide takes the crown as the lowest-risk region, with Norwood-Payneham-St Peters businesses showing a 4.55 per cent failure rate. Overall, Adelaide has the lowest CBD failure rate among capital cities, ahead of Perth, Brisbane, Melbourne, and Sydney.

What lies ahead?

The RBA and economists are predicting a “soft landing” for the economy, with inflation expected to moderate enough for further interest rate cuts. However, lower migration and slowing population growth could act as a drag on recovery.

The biggest wildcard remains the impact of US trade policies. If a broad range of tariffs are rolled out, they could disrupt global trade, push up costs, and add more strain to Australian businesses.

For now, businesses will be keeping a close eye on economic trends, hoping that early 2025’s positive start isn’t just a temporary reprieve.

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