Economic snapshot - Sales enviroment and civil debt defaults

In our Christmas sales forecast in October 2008, we expected November/December nominal sales growth of 11% and a 2% real decline; the actual outcome was 11.3% and -2%. At the same time, our advice to manufacturers and wholesalers was to insist on very short terms as we suspected that the gathering of due payments in February and March 2009 may prove to be very difficult and turn out to be true ‘hangover months’.

Indeed, we would now add that matters have certainly deteriorated significantly in the first six weeks of 2009, as the reality of the slowdown takes hold and payments for late 2008 orders are weighted up against other cash flow requirements.

Release of December 2008 civil debt statistics by Stats SA today reveals that judgments against businesses grew 22.5% in value terms to R1.098 billion last year, while those against individuals actually fell 6.1% to R4.923 billion. Admittedly, this latter figure looks strange in the face of January-November 2008 personal sequestrations some 51.5% above 2007 levels. However, this growing trend in payment defaults coincides very strongly with our own performance in 2008 and the first two months of 2009. Accordingly, we are of the view that payment defaults (in value terms) could escalate by as much as 50% this year, ultimately leading to the demise of 25% more companies (i.e. liquidations) than that experienced in 2008.