Australia looks to be heading toward an extended period of below-trend growth as interest rate rises and cost of living pressures hammer disposable incomes.

The growth outlook as measured by Westpac-Melbourne Institute’s leading index has returned its eighth negative reading in a row though lifted modestly from -0.79 per cent in February to -0.75 per per cent in March.

Westpac’s chief economist Bill Evans said the index, which indicates the likely pace of economic activity relative to trend over the next three to nine months, pointed to an extended period of below-trend growth for the Australian economy.

He said the findings aligned with Westpac’s expectations of one per cent growth in 2023.

Although the index doesn’t reach as far as next year, the bank’s economists are tipping another lacklustre growth rate of 1.5 per cent in 2024 led by weakness in the household sector.

Mr Evans pointed out population growth is expected to hit two per cent over that period, meaning these forecasts suggest economic output per person will contract in 2023.

“While we see the household sector at the centre of this, slowdown across the components of the index are also highlighting the drag from dwelling construction and the slowdown in the world economy,” he said.

But a CreditorWatch report has revealed relative resilience in the business community, with the monthly risk index showing several indicators of business activity rebounding to pre-pandemic levels despite mounting challenges.

Business-to-business trade receivables, the average value of invoices, lifted 45 per cent over the year to March.

This was partly driven by inflation but also by the return to normal trading conditions after the pandemic disruptions.

Another indicator of business activity, credit inquiries, lifted 149 per cent in the year to March.

CreditorWatch chief economist Anneke Thompson said the lift in trade receivables and other business activity indicators could be explained by the high workloads felt by many industries.

The construction industry, for example, is still working through high volumes of work and invoicing at a high rate.

“It is the cost side that is really damaging to this sector at the moment, with many projects being completed at a substantial financial loss to the builder due to the price the owner pays being fixed at the time of contract signing,” Ms Thompson said.

Insolvencies are also on the rise, with external administrations up 35 per cent over the year.

Business-to-business trade payment defaults lifted 20 per cent in the year to March, and court actions increased 22 per cent over the year.

Despite the index revealing ongoing resilience in the business sector, challenges are expected to start compounding as demand drops and the cost of doing business remains high.

Poppy Johnston
(Australian Associated Press)