Companies feeling the pinch

Johannesburg - Liquidations growth rose sharply in June from 6.8% in May to 33.5% in June on a year-on-year (y/y) basis. Total liquidations grew from 283 in May to 311 in June.

However, while close corporation liquidations declined from 174 in May to 164 in June, company liquidations rose from 109 in May to 147 in June. This is a change in pattern from earlier in 2009, as company liquidations had been declining from March to May while those of closed corporations were rising.

This suggests that while close corporations were hit harder and quicker than companies earlier on in the recession, the slowdown in economic activity seems to have caught up with companies as well.

Liquidations in the construction sector rose to 20 in June from 16 liquidations in May. Construction liquidations have regularly crossed the 20-level mark in February, April and again in June; this pattern is likely to continue, following a significant slowdown in the building plans passed since 2008.

Promising insolvency decline

The decline in medium, large and extra large commercial vehicles is an indication of a further slowdown in the sector's activity to come, which is likely to lead to more liquidations. Construction liquidations rose from 46 in Q1 to 62 in Q2.

Manufacturing liquidations are lagging behind the poor performance of the sector since late 2008, going into 2009. Manufacturing liquidations declined to 22 liquidations from 34 in May.

Nevertheless, similar to construction liquidations, Q2's manufacturing liquidations rose to 70 from 65 in Q1. With some recovery anticipated in the sector in Q3, a slowdown in liquidations is likely to follow in manufacturing.

Encouragingly, insolvencies growth declined for the third consecutive month in May. Insolvencies declined by -46.8% y/y during the month, indicating that strain on disposable income has come down significantly.

The decline in insolvencies is promising with regard to household consumption demand. Retail sales growth recovered significantly in May. This is likely to continue into June, which should lead to an improvement in wholesale and retail trade GDP in Q2.

- I-Net Bridge