SARB: SA's recovery driven by household spending
South Africa’s economy has been recovering since its lowest point in August 2009, mainly driven by household spending, the South African Reserve Bank (SARB) said on Friday.
“The recovery in households’ expenditure was especially strong in the area of durable goods such as motor vehicles,” the SARB said in its annual economic report 2011.
Real spending by households came off a low base given the contraction in spending in the middle of 2009. However, it was now growing at an annual rate of around five%. This growth had been driven more by rising real disposable income, than by households taking on more debt.
“Household debt has been rising moderately but disposable income has been increasing more forcefully, resulting in a declining household debt ratio.”
The bank said government spending had also risen steadily, except for buying military equipment, which was quite volatile.
The economy contracted by 1.7% in 2009, followed by growth of 2.8% in 2010.
In the final quarter of 2010 and first quarter of 2011, gross domestic product grew by more than 4% on an annualised basis.
“Of particular significance is that employment also started increasing from the second quarter of 2010.”
The bank accumulated gold and foreign exchange reserves to increase levels from $40-billion at the end of 2009, to $50-billion (about R338.3-billion) most recently.
“Despite the scale of the reserve accumulation, the effective exchange rate of the rand was higher at the end of May 2011 than at the end of 2009,” the SARB said.
However, the stronger exchange rate had helped moderate inflation despite higher international oil and food prices.
This helped keep consumer price inflation within the bank’s three to 6% target range.
“This created room for the monetary policy committee of the bank to reduce the repurchase rate on three occasions during 2010, by 50 basis points each time, bringing the level of the repurchase rate to 5.5% from mid-November 2010.
“At these levels money-market interest rates are at 30-year lows.”
The SARB report, released on its 90th anniversary, reviews the broader economic context within which the bank operated during 2010/11.—Sapa