Navigating rough economic waters into 2025

In late 2024, it’s clear that despite some hopes that conditions would improve this year, trading conditions have continued to deteriorate.

Amid rising costs, squeezed margins and plummeting consumer confidence, businesses are stressed, and in many cases, vulnerable. 

One key indicator? Dishonour and default rates. According to ASIC statistics, business-to-business trade defaults have increased by 14% year-on-year, indicating that businesses have more debt than ever, and less working capital to hand.

Within our portfolio at Hunter Premium Funding, we’ve seen our dishonour rate hitting a 5-year high, increasing 21.43% year-on-year. The impact is apparent across all states of Australia, and in New Zealand, both dishonours and insolvencies — the key lag indicator of economic stress —are rising.

Which industries have been hit the hardest?

If you work with clients in the accommodation, food, construction, manufacturing, rental or hiring sectors, you already know that these industries have been at the epicentre of 2024’s economic crunch.

Together, these industries have accounted for nearly 50% of all insolvencies, according to ASIC.

As consumers choose to save rather than spend on discretionary items, accommodation and food-based businesses have been hit hard. Within this field, insolvencies are up by a massive 49.64% year-on-year, while a full 1.52% of registered food and beverage businesses have declared insolvency —the highest rate of any sector.

Across all sectors, the majority of insolvencies are declared by small-to-medium enterprises (SMEs). If businesses like these number among your clients, then chances are they’re hurting right now.

The forecast into 2025

So, what does 2025 look like for these businesses – and the economy as a whole?

Based on these indicators, at Hunter Premium Funding we expect to see insolvency rates hitting new highs in 2025.

Interest rates have peaked in New Zealand with a rate-cutting cycle now underway. The cycle in Australia is less clear however, it appears that the cash rate has reached its peak at 4.35% primarily from a stabilisation in goods inflation.  

So, what can brokers do to help?

The good news is that in tough economic times, brokers can make a profound difference to clients who are under stress.

Talk to your clients— especially if they’re an SME in one of the most affected sectors—and gain an understanding of the financial challenges they’re facing.

In many cases, premium funding can be a powerful solution. By spreading annual insurance premium costs over monthly instalments, it helps businesses maximise their working capital and reduce cashflow constraints while maintaining the same level of insurance cover.

It’s also only generally available through brokers, allowing you to offer a game-changing opportunity to clients who may not even know what premium funding is. Even those clients who already use premium funding can benefit from a broker’s expertise in managing credit cycles proactively, especially in the case of financial hardship.

The bottom line? In tough economic times, clear communication with your clients is key. A quick call to check in and assess their needs could make all the difference.