Risk of Companies Facing Collapse Hits New High

The number of companies in danger of going out of business reached 18.3 percent in December, up from 18 percent in November. This is an increase of 1,000 more business on the danger list.

This rate of closure is the highest level in the last two years, according to Dun and Bradstreet (Israel) general manager, Reuven Kuvent, who said that this growth in troubled businesses has occurred despite the easing of the recession.

"In October 2003, when the recession was at its height, the level of companies in danger of closing was 18.1 percent," Kuvent said. Since then there was an improvement in the situation of these companies through the first few months of 2004, but since May 2004 there has been an increase in risk in various sectors of the economy. This has led to an increase in the number of firms taking court protection [against creditors] and the number of firms going out of business."

In particular, the business services sector has taken a turn for the worse. Such industries as leasing, consulting and office supplies have been hit particularly hard. In December 2004 the number of firms in these sectors in risk of closing jumped to 19.9 percent, up from 16.3 percent in November.

"The significance of the worsening situation of companies is that it directly affects the businesses which supply services, and this has led to a drop in demand for such services," Kuvent explained.

The list of industries at risk of going out of business was led in December by those in the food sector, especially restaurants and pubs with 59.5 percent in danger, up from 58.6 the previous month. Neighborhood grocery stores and food retail chains were also at a high risk: 46 percent in December as opposed to 45.5 percent in November. Bakeries were close behind, at 46 percent facing closure in December, up from 45.7 percent in November.

In second place in terms of risk came the real estate industry. Some 39.3 percent of developers and contractors in infrastructure were reported in danger of collapse in December, up from 38.5 percent in November.

One area that is recovering in the last year is the tourism industry, as the number of terrorist incidents has declined in 2004. The rate of tourism businesses which are facing closure has fallen to a below-average level of risk of 17.4 percent.

Plastics and rubber firms show a 15.5 percent level of risk, while other sectors with a relatively low risk level are garages and automotive services, publishing and printing, electronics equipment, chemicals and insurance.