Within a difficult first half, law firms show potential for a recovery, leaving room for guarded optimism, says the Australian Legal Market Midyear Update (Midyear Update).
Issued today by the Thomson Reuters Institute, the Midyear Update reports on the key performance indicators seen among many of the largest law firms in the country.
After earlier signs of a slowdown in the 2022 Australia: State of the Legal Market Report, new Thomson Reuters data shows that the market experienced a decline in demand in the first half of the 2023 Financial Year (FY 2023).
“Demand for legal services began the year on a decidedly negative note when measured against the highs of FY 2022, which nonetheless caused much concern among legal industry leaders and observers.”– Australian Legal Market Midyear Update
“However, the second quarter of FY 2023 saw a notable improvement in the rate of demand contraction, improving the year-to-date (YTD) measure of demand at the end of December to a contraction of 5.0%, a relative recovery from Q1.”
Balanced potential for a recovery
The Midyear Update includes the rates of demand for legal services across popular practice areas. Of the eight practice areas tracked, demand for three drove up law firms’ better performance – corporate general (4.5%), workplace relations (2.9%) and insolvency and restructuring (2%).
Anticipated increase in spend on outside counsel
For legal executives, the increase in forecasted corporate client spend on outside counsel may be a welcome reprieve. “On the whole, more consumers of Australian legal services anticipate an increase in spending on legal services than expect a decrease,” notes the Midyear Update.
Law firms’ ability to safeguard macroeconomic factors such as inflation and geopolitics will play a role in their recovery over the coming months.
“While Australian law firms find themselves in perhaps more favourable positions than many would have anticipated after the first quarter of FY 2023, success through the remainder of the year will depend on nimble, informed, and strategic decision making, while embracing calculated risks and solid financial management principles formed over the past several years,” the Midyear Update concludes.
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