South Africa’s consumers will continue to fuel economic growth as their incomes increase, a government minister said on Wednesday.
Trade and Industry Minister Mandisi Mpahlwa told Parliament on Wednesday the economy had gone through structural changes and consumer spending will be resilient.
”We are therefore confident that consumer demand that we have seen that has fuelled our growth will not disappear overnight, because it is based on higher levels of participation in the economy and rising incomes of people,” he said.
Official statistics showed earlier that retail sales — the main gauge of consumer spending — fell to a six-year low in December as higher interest rates pinched disposable income and household spending.
Consumer spending has fuelled economic growth in the past few years, with gross domestic product (GDP) expansion reaching a near three-decade high of 5,4% in 2006.
But household spending was contributing to higher CPIX (consumer inflation less mortgage costs), and in an effort to repress consumer exuberance, the central bank raised rates by 400 basis points between June 2006 and December.
Retail spending has since responded to tighter monetary policy, and analysts say if it slows further, it could add to risks of slower growth this year.
Mpahlwa said investment in infrastructure would also help support economic growth in the next few years.
”The projects that we are investing in are multi-year projects. The investment that is taking place in South Africa today is investment that is going to be sustained over the next decade, even 15 years.”
Power shortages since the beginning of the year have raised concerns about the ability of South Africa to maintain its growth momentum, leading some economists to scale down their growth expectations for this year.
State utility Eskom said some energy-intensive projects could be put on hold until the power supply has improved in 2013.
But the government has repeatedly played down the potential effects of the power crises on the economy.
President Thabo Mbeki said in his State of the Nation address last week the power problems were a result of good economic growth and did not signal that the country ”was going down”. — Reuters