According to new insights from Experian South Africa, the relaxation of blockade restrictions has helped slow the pace of deterioration in corporate health.
Experian’s Quarterly Business Debt Index (BDI) for the fourth quarter of 2020 reflects the level of corporate health in the economy and continues to improve as regulations are relaxed. BDI improved to -0.864 for the second straight quarter in the fourth quarter of 2020, dropping significantly from -1.401 in the third quarter to -3.727 in the second quarter.
Jacovan Jaarsveldt, Chief Decision Analyst at Experian Africa, said the economy was already in recession before the Covid-19 crisis began. This is reflected in the negative measurements in the second half of 2019 and the first quarter of 2020.
“A very severe economic blockade from late March to May 2020 closed virtually half of the economy at the time. Given this, BDI reached -3.727 in the second quarter of 2020. The collapse is not surprising. This is the lowest level ever. The significant improvement in the third quarter was essentially a negative number, but it reflects the relative decline in business debt stress that quarter. doing.
“A further uptrend in the fourth quarter means a slight improvement over the record low debt situation to date after more deregulations.”
Macroeconomic factors affecting the fourth quarter of 2020
South Africa’s fourth-quarter GDP was higher than expected, with quarterly annual growth of 6.3%, in addition to the very rapid recovery growth of 67.3% in the third quarter. The reason for the higher-than-expected growth in the fourth quarter in the country was the further lifting of regional blockade restrictions and the higher-than-expected results of the global economy.
“First, South African manufacturing exports have benefited from strong demand for metals and minerals, resulting in rising dollar prices for these commodities, improving South Africa’s trade performance,” said Van. Jarthbelt said.
“Second, the earlier than expected announcement of the development of a vaccine to combat the Covid-19 virus surprised companies and provided a time frame for returning to normal economic activity globally.
“Finally, with Joe Biden’s election as President of the United States, the U.S. government will embark on additional fiscal stimulus to replace the stimulus introduced at the beginning of the Covid-19 crisis almost a year ago. My belief has grown. It’s about to expire. “
These developments made BDI significantly stronger than expected in the fourth quarter.
In the fourth quarter, there was additional positive macroeconomic input that South Africa’s Producer Price Index (PPI) surged compared to the Consumer Price Index (CPI). The gap between the two narrowed from -0.82% in the third quarter to -0.27%, indicating a significant improvement in the company’s perceived rate of return, van Jaarsveldt said.
Business Debt Index for Q4 2020
Experian said the improvement in debt conditions in all sectors except mining reflects the positive impact of the further lifting of blockade restrictions that had a knock-on effect in most areas of economic activity.
Despite improvements in BDI in most sectors, only the agricultural sector recorded a positive BDI in the fourth quarter, as it did in the third quarter. This directly reflects the fact that until 2020, only the agricultural sector recorded positive GDP growth. During the Covid-19 crisis, there was no stage in which food sales were banned.
In addition, climatic conditions were very favorable for substantial crops in most parts of South Africa’s agriculture in 2020. This will continue until 2021 after extensive rainfall just after the summer rainfall season.
However, the relative improvement in debt conditions experienced in the fourth quarter was focused on large companies rather than small ones as SMEs experienced a relative deterioration in performance in the fourth quarter.
Domestically, there may be additional stimulus to growth resulting from the significant relaxation of blockade restrictions introduced by the government on February 1, 2021 in response to a fairly dramatic decline in COVID-19 infection rates. there is.
“Still, with BDI still below zero levels, it’s important to reflect the fact that the debt situation is deteriorating at a fairly active pace, even if it’s far less noticeable than before. A month ago, “Van Jasbert said.
Index reveals business health level of South African economy
Source link Index reveals business health level of South African economy