The South African consumer’s sterling role in buffing up the country’s economic performance appears to be nearing its end, with appetite for credit showing a decline and implying a need for new sources of economic growth.
This is according to the Reserve Bank’s Quarterly Bulletin released this week. At the same time, according to new data, consumer inflation continues to suggest that interest rates may be kept on hold while producer inflation still signals “deflation at the factory gate”.
Consumer inflation has been particularly important to the economy in view of the fact that manufacturing, mining and the export sectors have been strangled by the strong rand. Gross domestic product growth in the fourth quarter of last year was a meagre 1,3 %. Consumer spending grew by 4,2% in the last quarter of last year, following growth rates of 3,9% and 2,9% in the preceding two quarters.
Rejane Woodroffe, an economist at Metropolitan Asset Managers, said consumer spending could not sustain growth indefinitely, especially if the rand maintained its current strength. “When the sectors that have been hit by the rand begin to undertake lay-offs,that will hit consumer spending,” she said, noting the need for urgent stimulus.
Woodroffe suggested that one way of stimulating the economy was to “aggressively” cut interest rates in the months ahead. Another spur to growth would be for the government to launch proposed infrastructure spending, through the mooted upgrade of Transnet and the expanded public works programme. Woodroffe is one of the few economists who, last December, urged caution and predicted a 0,5% point cut in interest rates — at a time when other economists were calling for cuts as high as 2%. The Bank has since held rates steady.
A report from investment bank Merrill Lynch also supports the view that consumer spending is losing momentum. It expects consumption growth to decelerate in the second half of the year “on the back of rising job losses, more muted wage increases and the waning effect of last year’s interest rates increases”.
Further evidence of consumer’s spending fatigue comes from household credit extension, which grew at a slower rate, a development Merrill Lynch describes as “surprising”.
Household credit grew at an annual 11,7% in the fourth quarter, down from 13,6% in the third. The ratio of house- hold debt to disposable income fell 52,4% in the last three months of last year from 53,7 — the first time the ratio has fallen since the end of 2002. Merrill Lynch expects borrowing to decelerate through the second half of the year.
The quarterly bulletin also shows that private sector investment grew by 5,7% late last year.
Additional reporting by I-Net Bridge