Decoding South Africa’s decline in business liquidations

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New data from Statistics South Africa (Stats SA) for July 2023 confirms the encouraging trend seen in business liquidations, which are down compared to last year. This leads us to revisit our previous question. Does this decline indicate more robust economic conditions or should it be interpreted with caution?

Progress from previous trends

In our previous article, we discussed Stats SA data up to May 2023. The data shows a notable decline in business liquidations in sectors such as 'finance, insurance, real estate and business services' and 'trade, catering and accommodation'. This information, seasonally adjusted through the X-12-ARIMA method, provided a more transparent snapshot. The latest data, covering the period up to July 2023, shows that the number of liquidations is down 15.2% compared to the same month in 2022 and 14.2% year-to-date, further reinforcing this story. It is being strengthened.

Liquidation type persistent pattern

Our previous analysis highlighted a high incidence of voluntary liquidations across the industry. The latest data supports this finding. Companies appear to be making calculated decisions to close, suggesting they are maturely responding to economic challenges rather than simply risk-averse.

Industry stability: reflecting previous insights

As before, the most volatile sectors in terms of liquidations are the “finance, insurance, real estate and business services” sectors. On the other hand, industries such as “agriculture, hunting, forestry and fishing” and “mining and quarrying” continue to show resilience, and the stability of “electricity, gas and water” and “traffic and transportation” reflects the observation of storage, communication. ”

Seasonal adjustment reliability

Seasonal adjustment allows you to understand underlying trends more clearly, but it is important to remember that this method is not foolproof. Seasonally adjusted figures can be distorted by unpredictable factors, which justifies their use within a broader analytical framework.

Analyzing decline: a double-edged sword?

The decline in liquidations may not be a clear positive. As mentioned in the previous article, a decline in rates could indicate an improving business environment, or it could indicate a stagnant “zombie” economy where businesses are just trying to survive. Despite the encouraging new numbers, this concern remains relevant.

Liquidation in a global context

Our initial research reveals that the decline in liquidations is part of a larger global economic resurgence seen in countries such as Brazil, India, Nigeria and Indonesia. The latest data supports this view and suggests an improvement in the global economy.

Conclusion: A dynamic economic story

The continued decline in business liquidations can be seen as a positive sign towards economic stabilization, which confirms previous findings. However, this seemingly positive trend also contains layers of complexity. Although broader economic indicators look promising, certain sectors still face significant challenges. These facts contribute to an evolving economic story that leans toward optimism but requires continued scrutiny.