Some sign of easing in March liquidation figure

A total of 347 companies going bung in March represented a 16.8% year-on-year increase in company and CC liquidations – and could be an amelioration in the sharply deteriorating trend that has blighted the business landscape over the past six months, according to Luke Doig, senior manager of investments and economic services at Credit Guarantee Insurance Corporation (CGIC). In his analysis of the liquidation stats for FTW, Doig noted that there was a total of 1 008 liquidations in the first quarter – still some 46.7% above the 687 in the same quarter in 2008. “But,” he said, “both January and February this year were very near to 70% yearon- year growth, and the latest 16.8% figure might indicate an easing off.” The logistics sector (transport, storage and communication), meantime, is faring relatively well. Separating out the March figures for the sector, Doig found that the failure rate of six firms was unchanged from a year earlier. “Also, the year-to-date (YTD) total of 19 firms is marginally above the 18 recorded in Q1’08,” he said. He also felt that the interest rate relief of a cumulative 350 base points (bpots) – allowing prime to be cut to 12% from a peak of 15.5% – would help both ailing individuals and businesses. “Added to this,” Doig said, “the first few days of May have seen an over-recovery on both petrol and diesel which may hint at a cut in early June. “Note however that, at present, this is solely due to the stronger exchange rate, with crude oil prices remaining sticky at above US$50 per barrel.” There are other possible signs of a bottoming in the current downcycle. Doig noted the tentative pickup in the leading business cycle indicator for February – to 106.6 from 105.9 in January. Also the ‘expected business conditions’ component of the Investec purchasing managers’ index (PMI) creeping up to 48.3 in April from 46.6 in March. “This is however still below the 50 level which represents net optimism,” he said. “It would be folly to think we are out of the woods yet. Lower debt servicing costs are allowing for a realignment of spending patterns as opposed to prompting a resurgence in demand, and the impact of falling employment and crimped consumption levels will require more than just a few quarters to be rectified.”