November credit growth seen slower

Growth in credit extended to South Africa’s private sector is likely to have slowed in the year to November, as households hold back on taking on more debt due to higher borrowing costs.

The central bank cut interest rates for the first time in more than three years earlier this month, reducing its repo rate by 50 basis points after a series of rate rises totalling 500 basis points since June 2006.

Households have been feeling the pinch, scaling back spending, and consumer confidence fell deeper into negative territory in the fourth quarter.

A Reuters survey of eight economists showed growth in private sector credit extension (PSCE) was seen slowing to 15,1% year-on-year in November, from 16,17% in October.

The rate of growth of the broadly defined measure of money supply (M3) was seen slowing to 14,65% in the period, from 15,59 previously.

”PSCE data should continue losing steam alongside the ailing economy. The growth in PSCE could moderate quite meaningfully in November,” said Elna Moolman, economist at BJM.

The economy slowed to a decade low of 0,2% in the third quarter, partly as a result of depressed consumer expenditure, while household debt as a ratio of disposable income moderated to 75,3% in the period.

Moolman said next week’s credit data should be give comfort to the central bank that credit growth will fade rapidly.

Economists say these signs of depressed consumer spending and a struggling economy should lead to more rate cuts next year.

Forecasts for the trade balance, a highly unpredictable figure, put it at a deficit of R6-billion in November, from R9,8-billion in October.

”The forecast risks are exceptionally high in light of sharp adjustments in commodity prices … and the fire at an Engen oil refinery that will likely necessitate more refined oil imports,” said Moolman.

As a net importer of oil, South Africa’s trade balance has been mainly driven by oil imports and capital goods to drive government’s multibillion infrastructure programme. – Reuters

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