'There is light at the end of the tunnel,' says expert, as economic conditions stabilise
In the second quarter of 2024, New Zealand recorded the highest number of business failures in a single quarter since 2016, raising employment concerns for the workforce.
There were 700 insolvencies reported in Q2 2024, according to the latest BWA Insolvency Quarterly Market Report.
This is 23% higher than the first quarter, and 36% higher than the same period last year.
"While we anticipated a rise in insolvencies, the scale of the increase has been significant," said BWA Insolvency principal Bryan Williams in a statement.
Source: BWA Insolvency's Quarterly Market Report - Q2 2024
But the immediate concern following the high numbers of insolvencies is the fallout for the workforce, according to the principal.
"When companies go down, employees lose their jobs, and with the current economic squeeze, there are not enough places available for all job seekers," he said.
The fallout comes as New Zealand saw a decline in job ad volumes in the first half of the year, with postings only increasing by three per cent in July, according to SEEK NZ data.
Business failure forecast
The report said it would be difficult to pinpoint the exact causes for the insolvencies, as well as predict future recovery.
It noted, however, that the stable governance in the United States would likely influence the conflict in Ukraine and reduce the cost of imported goods and services.
"With the Reserve Bank's recent interest rate reduction, there is some hope for economic improvement. However, there is much in the pipeline that needs to work its way out, and it is doubtful that better cashflows will come soon enough to correct current insolvencies," Williams said.
"It is inevitable that insolvencies will be higher than normal for the next six to nine months."
But Williams said he is expecting the rise in insolvencies to "plateau" later in the year as economic conditions stabilise.
"There is light at the end of the tunnel and recovery will be driven by consumers spending less at the same time as producing more. Reduced interest rates will flow more revenue into the economy, aiding recovery," he said.
Source: BWA Insolvency's Quarterly Market Report - Q2 2024
Voluntary administration rising
Meanwhile, the report also found that cases of voluntary administration (VA) are rising in New Zealand.
In the second quarter, there were 28 VAs, or five per cent of total insolvencies, compared to Q2 2022, where there were only five VAs during the period.
"The rise in the adoption of Voluntary Administration reflects increased awareness among business owners of their options when facing financial difficulties," Williams said.
"We continue to field enquiry for this model as a way of helping businesses navigate through troubled times."
