/ 23 March 2010

SA household spending recovers in fourth quarter

South Africa’s household spending grew by an annualised 1,4% in the fourth quarter of 2009, the first increase in one-and-a-half years, pointing to easing strain on consumers as the economy recovers from recession.

The South African Reserve Bank said in its latest quarterly bulletin on Tuesday an improvement in spending, particularly on cars, computers and cellphones, helped lift gross domestic expenditure by 5% compared with the previous quarter.

“Real domestic expenditure and final demand registered improvements in the final quarter of 2009,” it said.

“Following five consecutive quarters of contraction, real final consumption by households rose in the fourth quarter of 2009 alongside an increase in real disposable income.”

Consumers have been under severe strain from relatively high debt and big job losses during a recession that ended in the third quarter of last year, and a recovery in household finances may show the sector is beginning to react to interest rate cuts, reducing the need for any more loosening in policy.

The central bank dropped its repo rate by five percentage points to 7% from December 2008 to August 2009 to help revive growth, and a small minority of analysts see scope for another reduction on Thursday.

The South African Reserve Bank said household debt levels remained high, edging up to 79,8% of disposable income in the fourth quarter from a downwardly revised 78,4%, but service costs fell due to lower interest rates.

Debt servicing costs declined slightly to 8,2% of income from 8,4% in the third quarter.

So far, manufacturing and other production sectors have led the economic recovery, although retail sales declined less than expected in December and January, suggesting conditions for consumers may be improving.

Consumer confidence measures are also on the rise. The central bank said household disposable income increased by an annualised 2,7% in the fourth quarter of last year.

For the year, spending was sharply lower, contracting for the first time in nearly two decades — the last time Africa’s biggest economy was in recession.

“The higher consumer spending in the final quarter resulted primarily from rising spending on durable goods,” the central bank said.

“On an annual basis, however, real final consumption demand by households contracted by 3,1% in 2009 compared with an increase of 2,4% in 2008; this was the first annual contraction in real spending since 1992.” — Reuters