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The NCI Trade Credit Risk Index (TCRI) increased in the June quarter 2023 as the effects of the broader economic slowdown and tighter monetary policy settings from the Reserve Bank of Australia impacted the cash flows and profitability of the business sector.

The lagged effect of the ending of the various business support packages that were in place during the COVID pandemic are also likely to have had an impact on trade credit claims.

A rise in the TCRI reflects a deterioration in business conditions. The TCRI, which measures a combination of claims data, collection activity, credit limit decisions and overdue accounts rose to its highest level since the September quarter 2020 which was during some of the most severe effects of the COVID pandemic lockdowns. Since the low point in the December quarter 2021, the TCRI has increased by over 40 per cent.

In the June quarter, the number of claims lodged for credit insurance rose by 29 per cent to 438 with the value of those claims up 63 per cent to $56.3 million reflecting several large claims.

As has been evident in recent quarters, the building and hardware sectors have the biggest claims, both in number and value. The problems in the building sector, in particular, are still playing out with severe cost pressures, labour shortages and the slump in new dwelling construction activity since early 2022 impacting negatively on the sector.

There was also a relatively large number of claims for manufacturing and electrical firms, in part due to building problems, in part a reflection of the broader economic slowdown.

Almost half of all the claims in the June quarter were in Victoria, while just under one-quarter were in each of Queensland and New South Wales.

With the full effects of the monetary policy tightening from the RBA and the impact this has on business conditions still to play out for the economy, a further increase in the TCRI in the next few quarters likely. The claims data are an important economic indicator which we hope to use more in our analysis of broader economic trends.

We will keep you up to date as the new data is available.