A glimmer of hope on the economic horizon
May’s liquidation statistics as released by Stats SA yesterday reveal a 35.7% year-on-year jump, bringing the year-to-date total to 1686 or 2.8% above the level seen in the first five months of 2009. This provides ample evidence of the severity of the economic crisis experienced last year.
Credit Guarantee’s threatening losses (or overdue advised accounts by our policyholders) have fallen 28.4% in number and 21.9% in value in the first six months of this year compared to the first half of 2009.
“It is heartening that this improvement appears to be gathering momentum,” says Luke Doig, Senior Economist at Credit Guarantee Insurance Corporation. “Significantly too, actual claims paid, albeit still at very high levels, also appear to be ameliorating quite strongly following the nadir in economic conditions reached last year. We remain hopeful that this improving trend in potential claims is further corroboration of an improvement in overall business conditions which in turn will lead to an eventual decline in business failures.”
Certainly challenges remain - some confidence indicators are beginning to plateau out while a double dip global recession would threaten exports of key commodities and other manufactures.
“However, if our claims gauge is correct as a leading indicator, a possible 50 basis points cut in interest rates next month, together with a 15cents per litre cut in fuel prices next week, may yet provide an impulse to overall demand while also assisting to improve current business cashflows,” says Doig.
Sectorally for the year-to-date:
· 99 construction closures were recorded in the first five months compared to 88 in Jan-May 2009 as projects aligned to the 2010 World Cup reached finality
· Wholesale and retail saw 483 failures compared to 513 last year and prospects for moderately improving consumer spend will hopefully assist further recovery
· The tertiary or services sector continues to feel the greatest impact with financing, insurance, real estate and business services experiencing 768 liquidations compared to 681 last year. This sector also accounted for the bulk of the monthly year-on-year spike, with 206 business failures compared to 120 in May 2009.
The improvement in personal sequestrations was also welcome with April 2010’s level 34.5% below that of a year earlier. This brought the year-to-date total to 1161 or 22% below that recorded in the first four months of 2009. The improvement in household debt to disposable income to 78.4% in the first quarter of 2010 – the lowest since the second quarter of 2007 – although still high, may also begin to suggest that the financial position of individuals will in turn feed through to improving aggregate demand.
