Economic conditions are at miserably low ebb, and look set to make for a rather poor run-up to the festive season for the SA business and trade world, according to Luke Doig, senior economist of the Credit Guarantee Insurance Corporation (CGIC).
“Business is going to face tough operating conditions for the foreseeable future,” he told FTW Online, “with weak demand set to bedevil the forthcoming Christmas trading season.”
He noted that electricity constraints were curbing output, while demand was being hampered by high unemployment - both of which, he felt, were not likely to improve for quite some time.
Also, manufacturing and agriculture are in recession and this has almost certainly extended into construction and mining.
“So that leaves wholesale/retail trade, business services and government to carry the can.”
But he pointed out that the latter was also under strain, given the squeeze from an inflated wage bill, while the current under-recoveries of approximately 15 cents per litre on petrol and 65 cents per litre on diesel boded ill for operating expenses and consumer wallets going forward.
“The sharp fall-off in vehicle sales is further evidence of a moribund economy while sectoral efforts to prevent further job shedding appear to be heading off course,” said Doig. “And this again adds significant gloom to retailers’ prospects leading up to Christmas.”
His prediction is that all of this may indeed persist - especially if currency weakness continues, interest rates rise further and job losses are extended.
“Consequently,” he said, “the risks surrounding payment defaults remain elevated in our view. So far this year, CGIC has paid in excess of R436 million in indemnities to local businesses as a result of payment defaults, with average claims values at R141 000.”
Doig also painted a picture of the corporate landscape having been battered by a number of large failures and some well-known businesses going into business rescue.
“Global demand is similarly facing numerous headwinds at present, further pressurising beleaguered manufacturers and exporters.
“India recently cut interest rates for the fourth time this year in an attempt to bolster the country’s flagging growth. And perhaps the SA Reserve Bank (SARB) needs to be thinking along these lines if we seek to prevent the country from falling into recession.”
