Small Business Closures in Australia Up 48% in 2011

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By Vittorio Hernandez | February 22, 2012 2:19 PM EST

About 2,700 small enterprises folded up in Australia in the last quarter of 2011, indicating the weak national economy outside the booming mining sector.

Throughout 2011, the number of small businesses that closed went up 48 per cent, credit reporting agency Dun & Bradsteet said on Wednesday. Along with the collapse of small businesses, few enterprises were opened in the same period with start-ups down by 95 per cent.

"There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvencies," Dun & Bradstreet Chief Executive Christine Christian said.

The agency downgraded more than 128,000 small companies in the last quarter, which is an indicator that more of such enterprises are headed for financial problems this year. The higher rate of failures than success has been a trend since 2008, Ms Christian disclosed, with failures growing at 30 per cent in the past three years.

The only good news in Australia's two-speed economy is almost no bankruptcy declarations in the mining sector during the last quarter of 2011 although there was a 20 per cent rise of failures in the industry since the 2008 global financial crisis.

The business failures were felt more in very small enterprises with less than five workers, where failure rate increased 57 per cent compared to 40 per cent rise in insolvencies for firms with 6 to 19 workers. Most of the affected small enterprises were engaged in services, finance and construction.

Ms Christian added that the recent rate cuts made by the Reserve Bank of Australia failed to boost the Australian economy based on the lack of confidence in the current operating environment. She explained that business failures are one of the side effects of the long-standing global uncertainty which is often enough to discourage entrepreneurs from opening businesses regardless of actual conditions.

Other factors cited behind business bankruptcies were the rising wage and non-wage costs, the strong Australian currency, the carbon tax and the weak demand conditions.

Similar findings are in separate New South Wales Business Chamber and Commonwealth Bank surveys also released on Wednesday. The NSW report found that the number of new small businesses started in the state declined by 75 per cent in 2011.

The report said almost 40 per cent of businesses suffered from drops in profitability in the December quarter, while 37 per cent expect another decline for the March 2012 quarter.

Along the collapse of small businesses are the axing of hundreds of jobs in large Australian companies such as BHP Billiton, ANZ Bank, Westpac, Manildra, Toyota, Holden, SP Export, Thales and Reckitt Benckiser.

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