South African Reserve Bank (SARB) governor Tito Mboweni took pains on Thursday to emphasise that his concerns about conspicuous consumption and the growth of the current-account deficit did not suggest he meant that the economy was overheating.
In reply to questions from MPs serving on the finance portfolio committee, he said his comments that people find themselves financially overcommitted did not mean “that we are saying that the economy is overheating”.
“We are not saying that. It is the manner of doing things … the over-focus on imports. Consumption here and there,” he said.
Mboweni suggested that people needed to look at their household budgets and determine how they could balance them.
Earlier, he warned MPs that although the South African economy looked good at present, there were danger signs which could signal “some major inflationary consequences down the road”. While things “generally look good…there are lots of dangers”.
Included in these dangers were “very strong domestic demand, very strong credit growth and worrying signs of increasing household debt as a ratio of household income”. He noted, however, that because of cheap money, a lot of people were buying up property other than their homes for rental.
There were also persistently high oil prices, major imbalances in the balance-of-payments account and a “very large current-account deficit” of more than 6% of GDP.
Urging that “the party must slow down a bit”, Mboweni said he noticed “much conspicuous consumption” — a Marxist-Leninist term for consumption which was not required but very visible — with many people driving imported French and Italian cars.
“There is something wrong in the economy encouraging this conspicuous consumption. Maybe that [borrowed] money is too cheap,” he said.
I-Net Bridge reported that the current-account deficit was a lot larger than analysts had expected at 6,4% of GDP, reaching 24-year worst levels.
The SARB reported on Thursday morning that South Africa’s current account deficit widened to R21,814-billion in the first quarter 2006 from R16,248-billion in the fourth quarter of 2005. — I-Net Bridge