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ECONOMY: Economy Battles Headwinds

 





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The 9.8% rise in July 2014 official liquidations to 213 from 194 a year earlier, is beginning to reflect the harsh realities of the current business environment and we would caution that a higher incidence is possible in the months ahead. Indeed, the latest three months to July 2014 is 22.4% higher than that experienced in the same 3-month period of 2013. The year-to-date fall in reported closures of 17.1% is likely to be eroded as the economy battles headwinds on many fronts. Our experience shows that payment defaults spiked earlier this year and have since edged lower, though stabilising at elevated levels. The fallout from the strikes is also not fully reflected in the figures and with GDP growth set to underperform spectacularly this year, more liquidations are set to be reported says Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation.

Sectorally, the primary sector experienced exactly the same number of liquidations in July as a year earlier namely 5; the secondary sector saw failures shrink from 26 to 12; and the tertiary sector accounted for 196 bankruptcies versus the 163 seen in July 2013.

The advent of business rescue in May 2011 has seen some 1,500 cases enter into such proceedings, of which Credit Guarantee has been involved in almost a third.

Minister Davies recently lauded the fact that only 73 of such cases had resulted in liquidation. While we welcome the saving of any business, the issue is: what defines a success? A range of industry sources put success rates at closer to 10-20% at best. And with the skills and number of business rescue practitioners, together with post commence finance remaining challenges, the question is whether creditors have been well served by the process.

We would also caution against reading too much into the June personal insolvency data of an 8.2% fall in the month from a year earlier or the 4.2% fall in the first half of the year. Massmart’s trading update last week was a stark indicator of the dire straits of consumer health and while fuel prices are set to fall in September, a rising interest rate environment bodes ill.


 
 
 
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