Low economic growth in South Africa has driven a deterioration in payment behaviour, and business insolvencies were expected to increase by 4 percent this year, according to a report by credit insurance company Euler Hermes released yesterday.
Low economic growth in South Africa has driven a deterioration in payment behaviour, and business insolvencies were expected to increase by 4 percent this year, according to a report by credit insurance company Euler Hermes released yesterday.

SA insolvencies expected to increase by 4%

By ANA Time of article published Feb 6, 2020

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Low economic growth in South Africa has driven a deterioration in payment behaviour, and business insolvencies were expected to increase by 4percent this year, according to a report by credit insurance company Euler Hermes released yesterday.

Euler Hermes’ Global Insolvency Report covers 44 countries and 87percent of global gross domestic product (GDP). The report said global bankruptcies were still on the rise, implying higher export risks.

Business insolvencies increased by 9 percent last year, mainly due to a prolonged surge in China (20 percent) and, to a lesser extent, a trend reversal in Western Europe (2 percent) and North America (3 percent).

South Africa was expected to experience a protracted growth slowdown, with GDP remaining flat this year and ticking up 0.7 percent next year, which will mark the fourth consecutive year of real growth of below 1 percent.

“Domestic demand is unlikely to sustain growth, in a context of a high tax burden, a 30 percent rate of unemployment as well as downward pressures on wages,” the report said.

“Low growth has driven a deterioration in payment behaviour, with business insolvencies up by 6 percent in 2019 and expected to increase by 4 percent in 2020.”

The country’s debt was likely to increase to 62.5 percent of GDP this year, while a budget deficit of about 5.9 percent of GDP would leave limited room for more fiscal stimulus.

“Opportunities for the economy could have emerged from the country's rich assets in commodities, but the lack of reforms is most likely to prevent the country from reaping the benefits of exportations in this sector,” the Euler Hermes report said.

“In addition, the lack of investments in structural infrastructural vulnerabilities - especially reflected by long-lasting electricity cuts this year - combined with increasing uncertainty on property rights, have led to investments outflows from the country.”

The other African country covered in the report, Morocco, will see a 5 percent rise in business insolvencies this year compared with a 7 percent increase last year.

Euler Hermes’ experts believed the trend of increasing insolvencies globally was a result of the combination of a low-for-longer pace of economic momentum, notably in advanced economies, in the industrial sector, and the lagging effects of trade disputes, political uncertainties and social tensions.

Even if monetary policies remained supportive this year, they will not be enough to counterbalance softer demand, tougher price competition and an increase in production costs, notably wages, the report said.

As a result, insolvencies were expected to rise again by 6 percent globally this year for the fourth time in a row, with Asia still the key contributor (8percent year-on-year), notably due to China (10 percent) and India (11 percent), the report said. 

 African News Agency (ANA)

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