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By Wednesday, 05 June 2024

Business defaults, liquidations rise as sector faces ‘very challenging’ environment

The construction sector remains at the front end of company insolvencies as businesses across the board face rising credit defaults and failures, according to the latest data from Centrix.

Insolvencies rose 30 per centyear-on-year in April 2024 to 203, while the 193 business liquidations recorded for the month were up 19 per cent over the same period.

Twenty-two per cent of the company insolvencies recorded in April were from the construction sector, Centrix managing director Keith McLaughlin said.

“The local construction industry has had a rough few years. This was driven in the first place by the challenges of Covid-19 and the impact the pandemic had on both supply chains and the industry’s ability to operate during the various lockdowns,” he said.

“In more recent times, the hangover from this period has seen many construction firms unable to get back to the levels of operation seen pre-Covid.

“The ongoing cost-of-living crisis continues to put pressure on the construction industry, with many consumers delaying or deferring projects, as well as rising levels of workers leaving New Zealand for careers in other countries.”

Property closely followed, accounting for 17 per cent of all insolvencies for April.

Business credit defaults increased by 13 per cent year-on-year, rising in every industry sector except for hospitality.

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Year-on-year, defaults were up in the property/rental sector (+46 per cent), transport (+21 per cent), retail trade (+18 per cent), and construction (+16 per cent). Hospitality defaults fell 1 per cent.

“It’s evident the current economic environment is still proving very challenging across the board,” McLaughlin said.

Businesses in the manufacturing sector, which accounts for 3.5 per cent of all registered companies in New Zealand, were nearly two times more likely to fail than the average business, McLaughlin said.

“Over the last year manufacturing liquidations have increased by 30 per cent year-on-year, with metal product manufacturing businesses experiencing the highest rate of liquidations,” he said.

In April, 14 manufacturing companies were placed into liquidation, the highest monthly total in five years, according to Centrix’s data.

“This is indicative of an industry facing challenges with weak demand along with a struggling economy,” McLaughlin said.

Business credit demand was up 12 per cent year-on-year in April, rising the most in the hospitality and retail sectors.

Consumer credit, mortgage arrears fall

The number of Kiwi consumers behind on their credit payments in April eased slightly to 458,000, down 5000 month-on-month.

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This was largely driven by lower vehicle loan and buy-now-pay-later arrears, McLaughlin said.

“It was pleasing to see a small improvement in arrears... however, consumer arrears are 10.5 per cent higher year-on-year, tracking closely to 2018 levels after coming off historic lows and we don’t expect this trend to change in the short-term,” he said.

“Examining the varying arrears levels, 171,000 consumers are currently 30+ days past due, of which 116,000 are at 60+ days in arrears.

“The number of consumers 30+ days in arrears are up 6 per cent on last year, despite easing in 2024.”

Mortgage arrears fell for the second consecutive month. There are now 21,700 home loans reported as past due (or 1.45 per cent of all home loans), down 400 in the last month.

However, mortgage arrears are still up 14 per cent year-on-year.

“The proportion of loans 30+ days past due is currently 0.71 per cent – compared to 0.54 per cent a year ago,” McLaughlin said.

Meanwhile, consumer credit demand is up 2.3 per cent from last year, but the rate of growth has subsided overall in recent months.

‘Tale of two economies’

McLaughlin said the cost-of-living crisis has not impacted everyone equally, as evidenced by consumer arrears, which are a sign of financial stress.

“A clear divide has emerged since 2022 – a tale of two economies,” he said.

“Consumers under the age of 25 are among those hardest hit, as they are more likely to experience cashflow problems and have limited savings to rely on. Consumers aged 40-49 are increasingly experiencing debt stress, with many [having] home loan commitments.

“In contrast, consumers aged 50 and above are faring better, with lower levels of arrears since 2020.”

McLaughlin said from July households across the country will have a little more money in their pockets every week after National unveiled a $14.7 billion tax package in last week’s Budget featuring tax cuts ranging from $4.50 to $135 a week for income-earning Kiwis.

“Only time will tell how this will impact the cost-of-living crisis, but there’s no doubt 2024 will remain challenging for some,” he said.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.

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