Returning to a real-world setting post-COVID can’t be achieved without some challenges, exec says
Australia could dip into recession within the next two years, more than 90% of management professionals believed, while 70% believed recession was likely within the next 12 months.
This was according to the 2023 Turnaround Survey by KordaMentha and Turnaround Management Association Australia.
The research also revealed industry sentiment was lowest since the survey began in 2019, with the business community expecting more corporate distress and insolvencies and increased inflation in 2024 as the economy “normalised” and returned to a “real-world setting.”
“The 2023 KordaMentha and TMA Turnaround Survey shows the business community is predicting some tough times ahead as the economy normalises after the artificial stimulus caused by COVID,” said James Wagg (pictured above), executive director performance improvement at KordaMentha. “This is not a doomsday spiral, instead we believe it is just the economy getting back on a real-world setting post-COVID, which cannot be achieved without some pain.
“We’ve been operating in an artificial economic environment due to the impacts of COVID. The government subsidies followed by increased revenues have had a positive impact on profitability, which means many businesses have not been focusing on costs.”
A third of businesses were expecting a continuing increase in inflation, half believed inflation would remain static, and nearly three-quarters predicted distressed M&A transactions to lift in the same period, the survey found.
While the survey aimed to assess turnaround activity, it also shed some light on business sentiment and the strength of the economy.
“During and post-COVID, we had supply chain issues, which affected costs for manufacturing,” Wagg said. “Now rising interest rates and inflation with resulting cost increases are causing a drop in discretionary spending and profitability. Wage increase decisions are causing pressure in service industries as well and increasing interest rates have made access to finance more difficult. So many borrowers have been forced to the secondary, more expensive money market.”
The survey forecast insolvencies and M&A activity to grow in the next year.
“Strong mergers and acquisitions activity since COVID has been from companies seeking to grow, prompted by buoyant conditions and the availability of low interest funds,” Wagg said. “Now it’s the reverse. Companies will be seeking to contract, prompted by distress and the need to liberate capital or lower costs.”
Wagg said this was happening with a waterfall effect.
“Construction was the first industry to be affected, unable to pass on rising costs due to fixed price contracts,” Wagg said. “We are now seeing other industries affected, like retail impacted by increased cost of living and reduced consumer spending. The next are likely to be services industries such as health, as government funding fails to keep up with increasing costs. It’s trickling through the economy.”
Download the survey report here.
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