The big question being asked by those involved in the credit risk management industry and generally is are we out of those dreaded recession “woods”?

From purely a practical personal perception the answer would be no. The number of bad debt hand-overs decreased toward the end of last year only to bounce back in February and March of this year, particularly businesses being handed over.

However Moody’s being reported in Business Report has stated the opposite:

“South Africa’s economic recovery has “arrived with a bang”, says Kristin Lindow, a senior vice-president at international credit ratings agency Moody’s.

At a media conference yesterday, she said “the numbers had really rebounded” and predicted growth of 3.2 percent this year, well ahead of the forecast of 2.3 percent in last month’s budget.

Lindow said the country’s recession had been relatively “shallow”. The German economy for instance had contracted about 5 percent, compared with South Africa’s shrinkage of 1.8 percent last year.

But job losses in the local economy were “outsized relative to the economic contraction, with employment down 6 percent” because the mining and manufacturing sectors had been badly hit.” (read the full report here)

So why are we then still seeing the increased bad debt hand-over rate? A potential answer can be found in a statement last year in which it was reported that:

“Corporate failures are expected to increase between now and the first quarter of next year, according to WesBank, the vehicle and asset finance house of listed FirstRand.

Chris de Kock, the executive head of sales and marketing at WesBank, admitted yesterday that failures in the corporate market was the only thing “worrying us now”, adding that there was always a 10- to 12-month lag between consumers faltering and corporate failures.

“We have a consumer-led economy and as the consumer falters, it has to have an impact on corporates. It takes corporates about 12 months to reduce their cost base and debt when the consumer falters.”

De Kock believes the corporate cycle will be less severe than the consumer cycle but still be “dramatic”.

The corporate cycle was also always shorter than the consumer.”