The construction sector has emerged as the weak link in the economy, with business insolvency rates that are higher than any other sector and growing faster than other sectors.

The most recent ASIC data shows that 129 construction businesses entered external administration or controller appointments in April, making up 27.7 per cent of total insolvencies.

The number of construction industry insolvencies in April was 46 per cent up on the same time last year.

The low level of insolvencies in 2020 and 2021, when banks and other creditors applied forbearance measures to deal with COVID, is a thing of the past.

The head of product and ratings services at Equifax, Brad Walters, said construction could be the canary in the coal mine.

Walters said: “The construction industry operates through an integrated delivery model that carries high contagion risks, with potential flow-on effect in areas like professional and technical services, insurance and finance.”

The construction sector has been particularly hard hit because building contracts often do not allow builders to pass on higher material costs. Delays caused by bad weather and supply chain problems have also been a problem.

“A lot of these businesses are small and don’t have reserves to fall back on when cash flow dries,” Walters said.

“Many construction businesses use their personal finances to support the business. We are seeing mortgage arrears rates for construction business proprietors going up.”

Walters said creditor wind-ups, which made up 65 per cent of business insolvencies in May, were up 41 per cent on May last year.

“We are getting back to more normal debt recovery activity. Businesses want to get back to appropriate trading terms

“Looking at the data, you would expect to see insolvencies continue to increase.”