RBA Highlights Persistent Stress in Hospitality, Construction, and Transport Sectors
The Reserve Bank of Australia's October Financial Stability Review highlights that while most businesses are managing elevated costs, the hospitality, construction, and transport sectors continue to face significant strain. The report, released on October 1, notes that although company insolvencies are around their longer-run average, these three sectors are experiencing heightened stress. The RBA emphasizes that the broader economic data, such as increased profitability for small and medium-sized firms and stable corporate leverage, may not reflect the day-to-day challenges faced by these industries.
Hospitality businesses, which rely on discretionary spending, are particularly sensitive to household budgets. The RBA points out that scheduled mortgage payments now account for around 10% of household disposable income, indicating a tighter consumer spending environment. Construction is under pressure due to the expected insolvency of a major builder, which is anticipated to cause a temporary spike in insolvencies in the September quarter. Additionally, housing prices have fallen in most capital cities, despite being 50% higher than pre-pandemic levels.
Transport businesses are grappling with rising energy costs, driven by global oil supply disruptions and recent developments in the Middle East. These higher fuel prices are a core operating cost for many in the sector. All three sectors are also dealing with a higher cost of credit, as the RBA raised the cash rate target to 4.60% on September 29, marking the fourth increase in 2026. Governor Michele Bullock noted that the full impact of these rate changes may take 12 to 18 months to materialize.
Despite these sector-specific challenges, the RBA maintains that the overall financial system remains resilient. The report highlights that more small and medium-sized firms were profitable in late 2025 than before the pandemic, and cash buffers for many businesses are above longer-run averages. The banking system is also described as sound, with Australian banks well-positioned to continue lending even in a downturn. The RBA's broader outlook suggests a period of subdued growth to reduce inflation sustainably, without forecasting a recession.