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The Reserve Bank's October Financial Stability Review found most businesses can manage elevated costs, but singled out hospitality, construction and transport as sectors where stress remains elevated.

Broad averages can be reassuring. Company insolvencies are around their longer-run average, more small and medium-sized firms were profitable in late 2025 than before the pandemic, and corporate leverage is stable. Yet the Reserve Bank of Australia's (RBA) latest Financial Stability Review (FSR) was careful not to let those aggregates paint too rosy a picture.

The Review, released on 1 October, said: "Most businesses should be able to manage elevated cost pressures, although conditions are more challenging in some sectors." It identified three: hospitality, construction and transport, where stress remains elevated.

For owners, workers and lenders in those industries, the aggregate figures may feel a long way from day-to-day reality. This explainer looks at what the RBA said about each, what it did not say, and the wider conditions they are operating in.

The FSR's words, and their limits

The RBA's description of the three sectors is brief. According to the Review, stress remains elevated in hospitality, construction and transport. It also said the administration of one major builder is expected to cause a temporary spike in insolvencies in the September quarter.

The Review's broader message about business is that most firms can cope. Its headline finding on failures was that "Total company insolvencies as a share of operating companies declined over the past year and are around their longer-run average".

What the Review does not do, in the material summarised here, is assign a single cause to the strain in each sector. That is worth keeping in mind. The RBA's wider commentary on the economy offers context, but readers should be cautious about drawing direct lines between a general trend and a particular industry's difficulties.

Three sectors, three sets of pressures

Hospitality. Businesses that rely on discretionary spending are sensitive to how much households have left over after essentials. The Monetary Policy Board's 29 September statement said: "There are signs that growth in consumer spending is easing gradually as expected." The RBA has also emphasised household budgets: Governor Michele Bullock said scheduled mortgage payments, including interest, are back up to around 10 per cent of household disposable income. The RBA has not linked these observations directly to hospitality stress, but they describe the demand environment the sector faces.

Construction. The sector carries the most visible reminder of strain, with the RBA expecting the administration of one major builder to produce a temporary spike in insolvencies. The housing backdrop has also shifted. In her 18 September opening statement to the House of Representatives Standing Committee on Economics, Ms Bullock said housing prices have fallen in most capital cities, while noting that "Housing prices are still around 50 per cent higher than they were in early 2020." The FSR said housing credit growth has eased recently, particularly for investors.

Transport. Energy costs are the most prominent pressure the RBA has highlighted this year. "Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation," the Board said on 29 September, adding that "Higher fuel prices have partially been passed through to prices of other goods and services." The FSR noted that energy prices rose sharply again in September in response to Middle East developments. The Review does not spell out a fuel-to-transport link, but fuel is a core operating cost for many transport businesses.

A tougher rate environment for borrowers

All three sectors are operating with a higher cost of credit. The Board lifted the cash rate target by 25 basis points to 4.60 per cent on 29 September, the fourth increase in 2026.

"I know this decision is difficult for households with a mortgage and businesses with loans," Ms Bullock said at the media conference that day. She also cautioned that "it can take 12, perhaps even 18 months" for the full effect of rate changes to be felt, suggesting the impact of this year's rises is still working through.

The RBA has framed its tightening as necessary to bring inflation down. Headline inflation from the August monthly CPI indicator was 4.0 per cent, according to the RBA homepage, while the Governor said underlying (trimmed mean) inflation has been about 3.5 per cent for the past six months. Both are above the 2–3 per cent target range.

On the broader outlook, Ms Bullock said on 18 September: "A period of subdued growth of aggregate demand is needed to reduce capacity pressures and bring inflation down sustainably." She described recession as "not our central base case at this moment."

Why the overall picture still looks resilient

The concentration of stress in a handful of sectors helps explain why the economy-wide numbers look steady. According to the FSR:

  • more small and medium-sized firms were profitable in late 2025 than before the pandemic
  • cash buffers for many businesses remain above longer-run averages
  • aggregate corporate leverage is stable around its longer-run average
  • non-performing commercial real estate loans remain low.

The banking system, which lends to firms across all sectors, also looks sound. "Australian banks are well positioned to continue lending, even in a downturn," the Review said. The Board's statement noted that "Growth in business investment and debt is strong."

In other words, the RBA's view is that pockets of difficulty exist without posing a threat to the financial system as a whole. The Review's overall verdict was that "Australia's financial system has a good degree of resilience, but global and operational vulnerabilities continue to mount".

The bottom line

The October FSR names hospitality, construction and transport as the sectors where business stress remains elevated, even as insolvencies across the economy sit around their longer-run average. The RBA's wider commentary points to easing consumer spending growth, a softer housing market and higher fuel prices as part of the environment these industries face, though the Review does not attribute each sector's strain to a single cause. What to watch: insolvency data for the September quarter, the next CPI release on 28 October, and the Board's 3 November decision.