Bloomberg News

South African Households Leading Recovery, Central Bank Says

July 01, 2011

(Updates with central bank comment starting in third paragraph.)

July 1 (Bloomberg) -- South African household and government spending is driving the recovery in the economy, while increased disposable income is enabling consumers to cut back on debt, the central bank said today.

“The recovery in households’ expenditure was especially strong in the area of durable goods such as motor vehicles,” the Pretoria-based bank said in its annual economic report. “While lower interest rates have given indebted consumers a reprieve, rising disposable income has been driving the expenditure, as opposed to a rapid increase in debt levels.”

While the increase in spending is likely to continue given low interest rates, it isn’t translating into demand-side price pressures, Monde Mnyande, the bank’s chief economist and a member of the rates-setting policy committee, said in an interview after the release of the report.

The central bank has left its benchmark interest rate unchanged at a 30-year low of 5.5 percent this year after cutting it three times in 2010 to support growth. The economy expanded 4.8 percent in the first quarter, the most in a year, according to statistics office.

Gross domestic spending climbed an annualized 8.3 percent in the first quarter, led by a 9.5 percent jump in government expenditure. Household spending rose 5.2 percent.

Credit Growth

While spending on durable goods such as cars and televisions climbed 21.5 percent, credit demand is still subdued. Growth in borrowing by households and businesses slowed to 5.2 percent in May from 6.2 percent a month earlier, the central bank said yesterday.

Higher international food and oil prices remain the biggest risks to inflation in the “near future,” after wage increases moderated from levels seen in 2008 and 2009, the central bank said.

“Underlying demand pressures are likely to keep oil prices at relatively elevated levels,” it forecast.

Consumer prices rose an annual 4.6 percent in May, the fastest pace in 12 months, compared with 4.2 percent a month earlier, according to the statistics office. The Reserve Bank has forecast inflation will breach the upper level of its 3 percent to 6 percent target range in the first quarter of next year as global food and fuel costs rise. Policy makers are watching for second-round inflation effects on domestic prices, Reserve Bank Governor Gill Marcus said yesterday.

“I don’t think we will see demand-side pressures coming into the economy any time soon,” Mnyande said.

Weak Exports

South African exports were lagging the recovery in other emerging economies and were also weaker than the improvement in trade in advanced markets, the bank said.

The slow pickup in shipments was due to a range of factors, one of which is a stronger rand, it said. The currency’s gain had also helped moderate inflation by reducing the impact of higher oil prices, the central bank said.

The currency has strengthened 39 percent against the dollar since the end of 2008, according to data compiled by Bloomberg. The rand weakened 0.1 percent to 6.7731 against the U.S. currency as of 9:30 a.m. in Johannesburg.

--Editors: Philip Sanders, Karl Maier


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To contact the reporter responsible for this story: Gordon Bell at

To contact the editor responsible for this story: Andrew J. Barden at

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