RBA Financial Stability Review: Business failures will rise substantially

The Reserve Bank of Australia, in its Financial Stability Review, has warned that business failures will rise "substantially".

The RBA states that households and commercial property are key areas of stress.

Business failures are expected to rise as loan repayment deferrals and income support come to an end. 

At least 10 per cent to 15 per cent of small businesses in the hardest-hit industries still do not have enough cash on hand to meet their monthly expenses, according to the RBA.

"These businesses are in a tenuous position and are particularly vulnerable to a further deterioration in trading conditions or the removal of support measures"

''Overall household income in Australia increased in the first half of the year, with large fiscal stimulus payments more than offsetting the decline in employment income.''

''The number of households experiencing financial stress has increased and will increase further.''

Market implications

The world economy is relying on stimulus and the US is not alone, despite so much market focus there.

Australia’s federal budget is counting on cash incentives for business to drive recovery too.

But Australia’s economy by end-2021 may still be smaller than in 2019, keeping unemployment too high, analysts at Westpac argued.

''The RBA should deliver further easing but A$ downside will be limited against a fragile US dollar,'' the analysts argued who have touted the Aussie's rise as part of a longer cyclical trend in prior commentary.