Small businesses are most vulnerable to economic shocks but their rising insolvency rates pose little threat to the overall financial system, according to the RBA.
The bank, in its biannual Financial Stability Review released Friday, said small businesses needed to manage their finances carefully as high interest rates, costs and slowing demand had put a dent on post-Covid recovery gains.
Higher interest rates have directly affected businesses interest expenses, especially for smaller businesses, it said.
Firm-level data suggest that operating profit margins as at March 2023 are around their pre-pandemic levels in most industries, outside of the mining sector. However, profit margins have begun to decline a little in the accommodation…
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