A surge in personal insolvencies shows interest rates are starting to bite and there are fears it is only the tip of the iceberg.
Sky News Political Editor Andrew Clennell says Australians are going to “cop another rate rise” next week to combat inflation pressures. “Dr Lowe was complaining again during this committee hearing about a lack of productivity in the economy which he indicated needed to occur to allow wages to rise without inflation also rising,” Mr Clennell said. “Frankly, Philip Lowe’s comments confirmed to me what I have been thinking for some time – that we are about to cop another rate rise next week.”
Data from the Australian Financial Security Authority found a total of 2494 new insolvencies in the March quarter of 2023 – up 12.6 per cent on the same period in 2022.
AMP Capital chief economist Shane Oliver said interest rates rises were behind the surge of personal insolvencies.
“We’re still in the early stages. Mortgage rates have roughly doubled since the March quarter last year and that’s causing quite a lot of stress,” he said.
“It always takes a while for the impact of higher interest rates to show up but there’s a lot of evidence that the economy is starting to sag.
“We’ve seen retail sales slow significantly, building approvals are at a 12-year low and the jobs market is starting to weaken.
“Then there’s an increasing risk of a recession which would push up unemployment that will also add to the stress, and when you have financial stress you have more insolvencies.”
The AFSA figures revealed that in the March quarter, personal insolvencies in Tasmania rose by 34.4 per cent, Victoria 18.7 per cent, South Australia 16 per cent, Northern Territory 5.6 per cent, NSW 3.5 per cent and Queensland 1.3 per cent compared with 12 months ago.
Western Australia and the Australian Capital Territory recorded a decrease of 0.5 per cent and 11.5 per cent respectively.
In addition to increased year-on-year insolvencies, AFSA statistics also show a 7.5 per cent increase in new insolvencies compared to the December quarter of 2022.
Overall, Queensland had the most personal insolvencies at 711 followed by NSW on 674.
Of the new insolvencies in the March quarter 2023, 60.3 per cent, or 1504 were bankruptcies, and 38.3 per cent of 954 were debt agreements. The remainder were personal insolvency agreements and deceased estates.
In the same period of 2023, 34.4 per cent of bankruptcies were business related, rising from 29.9 per cent in the March quarter 2022.
It comes as business leaders and economists say times will get tougher for the economy.
Wesfarmers boss Rob Scott this week said the “honeymoon is very much over” for the economy, as the country faces falling productivity and inflexible industrial relations reforms.
Economic data released this week shows consumers and businesses are under growing pressure. Consumer confidence fell 1.1 points to 76.2 points in the past week, according to the ANZ-Roy Morgan index.
Average confidence for May 2023 fell to 76.8 points, the weakest calendar month average since December 1990.
The chance of a Reserve Bank rate rise next month has increased, which will put more pressure on family budgets, following the release of stronger-than expected inflation data on Wednesday. CPI in April rose from 6.3 per cent to 6.8 per cent.