Financial pressures on firms across Australia’s economy in general and within the construction sector specifically appear to have stabilised, a new report suggests.

Credit reporting firm CreditorWatch has released the latest edition of its monthly Business Risk Index report.

The report brings together data from a variety of sources to provide a snapshot of financial pressures across the economy and within individual sectors.

Overall, the report suggests that the level of pressure on Australian businesses may have finally stabilised.

Across the economy, the number of companies that entered into insolvency for the first time contracted by 0.9 percent from April to May.

At this level, insolvencies are 12 percent below their November peak but remain at extremely elevated levels (see chart).

Meanwhile, the number of business-to-business (B2B) invoice payment defaults dropped by 11.8 percent in May. Defaults are now 18.3 percent below their December peak.

Number of companies entering insolvency for the first time – all sectors, Australia (seasonally adjusted)

(Source: CreditorWatch, ASIC, Macrobond)

Leading the insolvency decline have been the accommodation and food services sector as well as the construction sector.

This is encouraging as these sectors have been the most significant drivers of the insolvency surge over recent years.

In construction specifically – the focus of this newspaper’s coverage – ASIC data indicate that the number of companies which entered insolvency for the first time actually increased slightly from 298 in April to 307 in May.

However, construction insolvency numbers appear to have stabilised after reaching recent peaks (see chart).

Similarly, the stabilisation in B2B invoice defaults has been driven by declines in construction as well as food and beverage services and retail.

B2B payment defaults (seasonally adjusted)

(sources: CreditorWatch, ASIC, Macrobond)

The latest data comes as Australian businesses have experienced greater pressure over recent years on account of higher levels of inflation and interest rates.

This has led to a surge in levels of late payments, payment defaults and insolvencies (see charts).

Particularly impacted have been the construction and hospitality sectors. These sectors have been particularly exposed to cost pressures, higher interest rates and a pull-back in discretionary spending.

In terms of location, challenges have been particularly severe in Sydney’s west, which is home to the nation’s six worst performing regions.

This has been driven by high commercial rents, above-average levels of personal bankruptcy and lower than average household incomes.

It comes despite parts of the region experiencing a construction boom on account of the new airport and associated infrastructure which is currently being developed.

Speaking of the overall economy, CreditorWatch chief economist Ifan Colhoun say that recent data is encouraging notwithstanding that pressures on business remain elevated.

“The most recent trends have reflected a stabilisation to slight improvement in the pressures impacting on Australian businesses in the early months of 2025,” Colhoun said.

“Looking ahead, while looking ahead, conflicting pressures remain. Favourably, interest rates reductions should benefit both businesses and consumers as will the slower rate of inflation. Working in the other direction are the drag on world growth from US trade and tariff policies along with slower Australian population growth. The latter suggests at least two to three further interest rate reductions are likely, perhaps more if there is any suggestion of emerging weakness in employment.”

Speaking about the construction sector in particular, Colhoun says that insolvencies have stabilised at high levels.

He says that the outlook remains challenged over the short term but may improve over the longer term.

“The best characterisation of the current construction sector insolvencies trend is that they appear to have levelled off at high levels,” Colhoun said.

“This likely reflects the combined impacts of slower rates of construction material price increases, less fixed price contracts to build, the beneficial effects of income tax cuts and cost of living support for consumers and businesses flowing through the economy. It’s too early to expect the February interest rate cut to have had much impact.

“Looking ahead, insolvencies are expected to remain relativel1y elevated in the next six months, but to begin to improve over the six to twelve months timeframe. In the short term, the effects of weak consumer confidence, previous very large construction cost increases, and weaker home building and renovations activity will be an ongoing pressure on the industry.

“Beyond six months, lower interest rates and state and federal government initiatives to boost construction of new dwellings are expected to benefit activity and profitability in the sector, helping reduce insolvencies.”

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