Consumers: Short-term » Press Room

Do the numbers belie the sentiment?

by Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation

Is there a chance that the SA Reserve Bank will reduce rates this week in an attempt to shore up the economy and boost local activity?  Let’s hope so! The Reuters Consensus poll indicates that most economists believe that there is not likely to be a change but, I think there is still better than an outside possibility of additional relief in the first half of 2010.

December 2009 liquidations of companies and CCs rose 10.1% year-on-year to 382, taking the annual total to 4133, which might be a concerning 25.2% up on 2008’s level but, while this outcome has meant hardship for many, it is a far cry from the 70% increases seen in the first quarter of 2009.

Insolvencies of individuals and partnerships rose 12.6% year on year in November 2009, leaving the total for the first eleven months 5.4% below that of the same period in 2008 and there is some hope that this decline will continue when the December figure is released.

An analysis of the sectors shows how each was affected vis-a-vis the numbers of companies liquidated:

Sector	2009	2008	Comment
Agriculture	40	38
Mining	17	70
Manufacturing	236	202	A difficult trading period; demand remains subdued
Electricity, Gas & Water	20	14
Construction	227	171	Hopefully there will be ‘legs’ to the infrastructural thrust
Wholesale & Retail	1 305	988	Most pain appears to have been centred here
Transport (logistics)	137	126
Finance, Insurance & Business services	1 770	1 428	The downturn moved through the primary to the secondary and finally to the tertiary sector
Community Services	381	263
TOTAL	4 133	3 300

Credit extension figures are at all time lows and even though banks have relaxed some of their lending criteria, much more needs to be done to facilitate easier lending. The leading indicator has been rising for eight of the last nine months, with the November 2009 level being almost 12% above that of a year earlier.

So even with moribund retail sales data and the fact that payments due for purchases made late last year still have to be met, it implies that matters could begin improving as we move into the second quarter of 2010. While I have no doubt that there will likely still be a number of companies going to the wall, the faint beginnings of improved sentiment amongst South African businesses and citizenry in general, may point to improved trading conditions in the months ahead.

This may very well be buoyed by the euphoria leading up to the Soccer World Cup – during the event, schools are going to be closing, which will most likely translate into thousands of additional feet in retail outlets. Secondly, the World Cup is not going to be over for very long before re-stocking begins in the third quarter in anticipation of 2010 Christmas shopping.

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