Businesses facing ‘existential threat’ — report
Insolvency service says a new wave of failures is looming, writes
Asecond wave of business failures and threats is likely, due to the fall in consumer spending and the global economic slowdown, says a new report by BWA Insolvency.
The insolvency service’s quarterly update said that in the July to September period, insolvencies increased sharply on the previous quarter in the food and beverage, retail and agriculture sectors.
While other sectors had shown only a slight increase in business failures, and in some cases the rate had slowed, a second wave of economic impact was approaching, the report says.
“The decrease in consumer spending alone may lead to the collapse of vulnerable companies. However, if we also consider the gradual slowdown of global economies, it is almost certain that many companies will face an existential threat in the next few months.”
A combination of lower discretionary consumer spending, increased costs for businesses, and decreased international demand suggested “the New Zealand economy will be facing severe headwinds in the coming months”.
“This will likely impact frontline providers meeting consumer demands — hospitality and retail are clear candidates. While going out for dinner or a hit of retail therapy still occurs, modified spending is becoming evident,” the report says.
On a brighter note, the insolvency rate in the tourism industry had improved. There had also been an improvement in the professional sectors, specifically legal and accounting services, although this sector typically accounted for a small number of failures in this country.
Food and beverage, retail and agriculture recorded 46 per cent, 43 per
While going out for dinner or a hit of retail therapy still occurs, modified spending is becoming evident.
cent and 130 per cent increases respectively in business failures in the latest quarter, compared with the previous quarter, says BWA.
Across all sectors, insolvencies for the quarter were up 5 per cent on the previous quarter, and 20 per cent higher than in the same period last year, its report says.
Agriculture had been particularly hard-hit, with insolvencies up 109 per cent year-on-year.
In the third quarter of this year, 23 agriculture businesses had failed, compared with 10 in the second quarter.
“This increase can be explained by the significant weather events New Zealand has faced this year . . . floods wiped out crops and these latest insolvency figures show many farmers could not recover.
“We can expect a trickle-down effect to come into play in the produce supply chain this quarter.
“All New Zealanders are aware of the increase in the price of produce, in part caused by a shortage of supply due to weather events.
“While this lack of supply initially affects the agricultural industry, we can see from the insolvency figures that there has been a flow-on effect on the food and beverage industry, which will struggle to deal with the increase in costs and supply.”
A clear picture was coming from consumer-facing sectors, the report says.
In the third quarter of last year, there were 28 insolvencies in retailing. In the same period this year, there were 53, up 89 per cent.
Insolvencies in the food and beverage sector had increased marginally compared to a year ago, but compared with the second quarter, they had jumped from 26 to 38.
BWA notes the circumstances that result in failure were rarely caused by current events. “As the Reserve Bank continues its anti-inflationary measures to tighten liquidity across the economy, we can expect businesses that sell directly to the consumers to bear the brunt.”