The Reserve Bank reported last Thursday that private sector credit demand from households and companies fell 1,6% year on year in November.
The latest credit figures indicate that the local economy, struggling to shake off the effects of SA's first recession in 17 years, remains fragile as unemployment keeps climbing, prompting consumers to cut spending, and banks to remain conservative.
The economy emerged from recession in the third quarter last year after contracting for three quarters.
However, business confidence has recovered only marginally from a 10-year low, while consumer demand, the economy's main growth engine, remains weak.
The Bank said last month that household spending fell for a fifth successive quarter in the September quarter, amounting to 61% of gross domestic product, the lowest ratio since 1994's first quarter.
Stanlib economist Kevin Lings told Business Day yesterday the decline in credit demand was “exceptionally unusual”, fuelled by a combination of factors including the global credit crisis and high interest rates, which only started easing in December 2008.
He said this was a once in 50-year event. In a typical recession, credit demand rose 3,5%, Lings said.
Nedbank chief economist Dennis Dykes said in the research note that credit demand had its “strongest contraction” since 1965. Dykes said although private sector credit rose by a modest 0,1% over the month, the trend was still “very weak”.
The 500-basis-point reduction in interest rates did little to boost consumer spending in an economy that shed almost 1-million jobs in the first three quarters,
Lings said credit, including car loans, mortgage, credit card and corporate credit was weak across the board.
Companies, which were deleveraging, were in a consolidation phase. Indebted consumers shied away from “big- ticket items”.
Lings said the latest credit numbers were off a high base. From 2004 to 2007 there was a lot of credit sloshing around, and this could not be sustained.
Dykes said the credit data continued to reflect weak economic conditions in the household and corporate sectors.
“Despite the strong decline in interest rates, this upswing will be more modest than the previous one, hampered by already high debt levels in the household sector and uncertain global conditions.”
High unemployment and debt levels as well as weak confidence continued to offset improved affordability in the household sector, while companies had cut back on investment plans, he said.
“Credit demand tends to lag improvements in the real economy, and will start rising convincingly only in the second half of 2010,” Dykes said.
This year's Soccer World Cup, lower interest rates and stable employment conditions would help a gradual pick-up in credit extended to households, he said.
Companies were unlikely to require much in the way of additional finance.
Overall, the recovery in credit demand was expected to be more modest than in previous cycles because of higher levels of debt, subdued economic growth locally and globally and tighter credit standards and regulations, Dykes said.
He said the upswing was in place, and the monetary authorities were concerned that the risks to the inflation outlook were to the upside.
Source: Business Day
Published courtesy of
.
