Business insolvencies have surged dramatically, with current rates more than double compared to those of the previous year.
In October 2024, the Insolvency and Trustee Service reported 72 liquidations, a slight decrease from 74 in September. Notably, 37 of these liquidations occurred in Auckland.
“It’s consistent with what I would expect, and I’d expect this to continue,” Shamubeel Eaqub, chief economist at Simplicity, stated.
Eaqub forecasts that the upcoming months will be challenging for numerous businesses, particularly those outside the hospitality and retail sectors.
Cash flow issues were a significant concern for many companies, he explained. He also highlighted the worsening economic difficulties, with many businesses experiencing shrinking profit margins due to their inability to increase prices while also facing reduced sales.
Many of the liquidations are being influenced by the Inland Revenue. Eaqub noted that in the past, it was typically other businesses that initiated the process. However, the Inland Revenue is now intervening earlier.
Eaqub indicated that conditions are expected to improve next year as interest rates decline further, providing a stabilising effect on the economic downturn. This reduction in rates is likely to encourage consumer spending and investment once again, facilitating the recovery process.
“Even when the economy is recovering, it doesn’t mean every business is lifted by the rising tide. Because of poor cash flows and a lack of money, those kinds of things catch up with you, and the business is just not ready to participate in the recovery.”
“It doesn’t necessarily mean things are getting worse; it just means we’re in the middle of the recession even though we’re seeing some of those very forward indicators starting to pick up.”
He mentioned that there are positive indications that businesses are becoming more resilient, with newer enterprises managing to survive longer than those from a decade ago.
However, he also emphasised the recession is still having a significant impact and is “taking a toll.”