Turnaround experts predict tough times ahead for Aussie businesses

Insolvency and restructuring professionals are predicting tough times ahead for Australian businesses according to the latest annual survey by the Turnaround Management Association and KordaMentha.

The latest annual Turnaround Survey by the Turnaround Management Association (TMA) and sector specialist KordaMentha found that over 90 percent of industry professionals expect the Australian economy to slip into recession within the next two years.

Marking the most pessimistic economic outlook in the survey’s five-year history, seven out of ten further believe a recession will most likely occur in the next twelve months.

Of course, gloomy economic sentiment doesn’t translate to business pessimism for the turnaround community, with a greater number of corporate distress and insolvency cases anticipated as the economy recalibrates following the impacts of Covid-19 and an irregular revenue bump in its wake. Industry professionals also expect rising inflation will continue to bite, with 40 percent of those surveyed predicting a severe impact on Australian businesses.

“The survey shows the business community is predicting some tough times ahead as the economy normalises after the artificial stimulus and increased revenues caused by Covid-19,” commented KordaMentha performance improvement executive director James Wagg. “This is not a doomsday spiral, instead we believe it is just the economy getting back on a real world setting post-Covid, which cannot be achieved without some pain.”

As a further breakdown of the results, one fifth of the survey respondents think the economic decline will occur in the immediate short-term, with a recession predicted to be very likely within the next six months, while less than one in ten believe the economy will hold up over the coming two years. This compares to the almost three quarters who shared that sentiment this time last year, and is even more negative in outlook than in the early days of the pandemic.

As for inflation, altogether 96 percent of the respondents were of the opinion that inflationary trends would have at least a moderate impact on businesses, with close to a third forecasting a continuing rise and only 22 percent expecting a decrease over the next twelve months. Compounding the situation, the vast majority feel that access to various forms of debt and equity financing has become much more difficult for companies compared to this time last year.

Altogether, the responses translate to an 88 percent expectation that M&A activity related to distressed assets will be on the up this year – significantly, according to 15 percent – with rising costs and wages given as the primary causes of financial pressure and the construction, service industries including retail, commercial real estate, and healthcare sectors facing the greatest challenges due to fixed contracts and a slowdown in discretionary consumer spending.

Wagg said: “During and post-Covid we had supply chain issues, which affected costs for manufacturing. Now rising interest rates and inflation with resulting cost increases are causing a drop in discretionary spending and profitability. Wage increases are causing pressure in service industries as well, and increasing interest rates have made access to finance more difficult, so many borrowers have been forced to the secondary, more expensive money market.”