PAUL RICHARDSON, Johannesburg | Monday 3.45pm.
ECONOMISTS said on Monday that prospects for an uptick in business this year look moderate to distant after a record 367 South African businesses collapsed in January under the weight of punitively high interest rates.
This comes after Statistics South Africa data last week showed company and closed corporation failures breached the 300 mark for the first time in January, rising a staggering 126,5% from the corresponding period in 1997, and 35,4% from December.
”Businesses got hit by a double-whammy — their costs increase if they are borrowers and their turnover is under pressure because consumers have cost pressures too,” said Econometrix economist Tony Twine.
South African lending rates rose to a record high of 25,5% in October after the Reserve Bank tightened monetary policy to stave off a speculative assault on the rand.
Luke Doig, economist at Credit Guarantee, said increasing numbers of construction firms are closing their doors, as are wholesale, retail and transport concerns. ”The issue now is whether prime of 20% will be sufficient to save more concerns from going to the wall, or will real rates of 11% still stifle survival?” he said.
Economists expect at least three more one percentage point cuts by year-end, stimulating flagging demand, while annual inflation is expected to approach 4%. ”Even if interest rates do go down to say 16%, we will still have double-digit real interest rates,” Doig said. — Reuters