Down, down and staying down.
The Australian Financial Security Authority (AFSA) released the personal insolvency statistics for the June quarter of 2019 and the 2018-19 financial year. Once again, personal insolvency statistics have fallen with a 20.1% decrease in new personal insolvencies from the June 2018 quarter and an annual drop of 15.1% from 2017-18.
From the quarterly analysis, it is clear that this trend was consistent nationally with all states and territories experiencing a substantial drop with Western Australia having the greatest decline in all types of personal insolvencies, falling 24.2% compared to the June 2018 quarter.
Personal insolvencies again fell across all three types of appointments. Bankruptcies fell 12.9%, personal insolvency agreements dropped 10.9% and debt agreements saw an astronomical drop of 28.7% nationally with debt agreements in Victoria at their lowest level since the September 2013 quarter.
From the annual statistics, we can see that while total insolvencies fell in all states and territories compared to the 2017-18 year, the fall was not consistent across all forms of personal insolvency. Western Australia did not experience a fall in bankruptcies; and the ACT, Western Australia and Tasmania were exempt from this trend when it came to personal insolvency agreements.
So, what does this mean?
While we have seen several quarters of increasingly negative economic news, and dire predictions of a coming recession, to date we haven’t seen any increase in bankruptcy figures.
There are two explanation for this. First, personal insolvencies have historically been a lagging indicator. When the global financial crisis struck in August 2007, we didn’t see a corresponding spike in personal insolvencies until the June quarter 2008, almost a year later. So far talk of a coming recession has had little impact on consumer sentiment, and unemployment rates remain low. A formal personal insolvency administration is often an option of last resort and while there remains significant positive sentiment in the economy, we would not expect to see an increase.
Second, to date, the economic headwinds faced by the Australian economy have been largely felt in asset prices, particularly the price of housing in capital cities. While these fluctuations impact household balance sheets, they don’t have significant impacts on household income or expenses, which are the significant driver of personal insolvencies. Additionally, factors such as the recent tax cuts and reduced interest rates will have alleviated some pressure of household budgets, further delaying many potential personal insolvencies.
Looking forward, we expect personal insolvencies to remain flat, or to continue to fall. A recession could still be a long way off and in the interim, as long as there is no significant shock to household budgets. In particular we will be keeping a close eye on the employment rate and household income indexes.