“While we anticipated a rise in insolvencies, the scale of the increase has been significant,” Williams said.
“I think the real issue is the latency of Covid.
“The commissioner [for Inland Revenue] was very generous in being tolerant given the Covid circumstance, which was very helpful to a lot of companies, but on the other hand it potentially allowed companies to exist that perhaps should not have.”
Williams also said consumer spending has been driven down through increased interest rates as the Reserve Bank fights off inflation.
“I think that this is widespread and is consumer-driven rather than the 2008-2009 Global Financial Crisis, which is really just a capitalist outcome,” he said.
Construction was one of the hardest-hit sectors in the second quarter, with 162 insolvencies, up 22% compared with Q2 in 2023.
Food and beverage insolvencies surged 85% to 50 in the second quarter compared with the same period last year.
Property and real estate insolvencies increased 50% to 93 over the same period.
“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 cash flows will come soon enough to correct current insolvencies.
“It is inevitable that insolvencies will be higher than normal for the next six to nine months.”
Williams said of immediate concern is the fallout that hits employees.
“When companies go down, employees lose their jobs, and with the current economic squeeze, there are not enough places available for all job-seekers.
“There will be many empty pay packets and demand will suffer as a result.”
However, Williams said he believed there is reason for cautious optimism.
“We expect the upward trend in insolvencies to plateau later in the year as discretionary spending increases and economic conditions stabilise,” Williams said.
“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.”
A recent survey of 239 business owners from consultancy firm Business Changing found 77% believed the current economy was having more of a detrimental impact on their business than Covid times.
As a result, one in five said they feared they might have to close their business.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
