South Africans are about to “rewrite the record books” with a R35-billion spending spree — but without the need to worry about a debt or inflation hangover, says Dawie Roodt, chief economist at the Efficient group.
Roodt’s assertion follows weekend reports suggesting a strong increase in festive-season sales across a range of consumer goods, from electronic items and furniture to airline tickets.
According to Statistics South Africa, retail trade sales for December 2002 were R26,5-billion. Roodt expected this festive season’s sales to be “R35-billion plus”, representing an increase of more than 30%. The latest figures for 2003, September’s, show a 10,7% annual increase in retail sales to R19,2-billion.
Roodt attributed the surge in spending to “the size and timing of interest-rates cuts”. This year the Reserve Bank’s monetary policy committee cut interest rates by a total of 5,5% in the six months from June.
Some commentators have noted that if a substantial portion of the spending is debt-based, it may limit the Reserve Bank’s ability to cut rates in February.
James Lennox, CEO of the South African Chamber of Business, said he did not expect the record splurge. “We thought people would run down their debt and use cash,” he said, adding that a spending boom “is positive, with a few areas of concern”.
He noted that if the goods flying off the shelves were imported, without the requisite exports to balance them because of the strong rand, this would have an adverse effect on the country’s balance of payments, and thus the exchange rate.
Roodt also noted that relatively low levels of household debt meant there was still room for households to borrow without “getting into trouble”.
Household debt accounts for 54% of disposable income in South Africa. In Britain the figure stands at 123%.
According to the Micro Finance Regulatory Council, during the quarter to August, a total of R3,6-billion was disbursed, the second-strongest quarterly level since the statistics were first compiled in 2000.
Roodt said he did not expect festive-season spending to cause runaway inflation, because of the countervailing effects of the rand.
Reserve Bank Governor Tito Mboweni frequently cites increases in expenditure and household debt as risks that threaten the inflation outlook.
Asked in December how he expected people to spend money during the festive season, Mboweni said “wisely and responsibly, to continue to reduce debt”.
Roodt expected the festive splurge to edge growth above the 2% mark. He noted that in times of a weak currency, growth was driven by production through exports and manufacturing, while in times of currency strength, it was driven by demand.
Growth in final demand for the first nine months of 2003 stood at 4%. The Reserve Bank expects this to improve in 2004, largely because of a recovery in the global economy.