Bloomberg News

South African Consumer Spending Weakens, Threatening Recovery

September 13, 2011

Sept. 13 (Bloomberg) -- South African consumer spending, which accounts for two-thirds of demand in the country, slowed in the second quarter, threatening the recovery in Africa’s biggest economy.

Growth in gross domestic demand, which includes consumer, government and investment spending, decelerated to an annualized 1.3 percent in the second quarter from 7.9 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin today. Household spending rose 3.8 percent, down from 5.2 percent.

The data confirms a slump in demand that slowed economic growth to a two-year low of 1.3 percent in the second quarter. The central bank, which will make its next interest-rate decision on Sept. 22, has left its benchmark interest rate unchanged at a 30-year low of 5.5 percent to help spur spending and support the recovery.

The slowdown in consumer spending “follows two years during which growth in household-consumption expenditure has been the mainstay of the revival in the overall domestic expenditure,” the central bank’s chief economist, Monde Mnyande, said in a speech in Pretoria today.

Inflation accelerated to a 17-month high of 5.3 in July, the statistics office said on Aug. 24. The central bank expects the inflation rate to exceed the 3 percent to 6 percent target range in the fourth quarter.

Arms Purchases

Government spending contracted an annualized 0.1 percent in the second quarter, compared with an expansion of 9.5 percent in the previous three months, when the state purchased arms as part of its defense program, the report said.

Investment spending rose 4.1 percent from 3.1 percent in the same period as state-owned companies Eskom SOC Holdings Ltd. and Transnet SOC Ltd. increased expenditure on vehicles, machinery and equipment for its capital projects, the bank said.

Growth in consumers’ disposable income weakened to 4.1 percent in the second quarter from 5.4 percent in the previous three months, resulting in households’ debt levels rising to 75.9 percent of income from 76.8 percent, the central bank said.

The Reserve Bank added that government gross-loan debt increased above 1 trillion rand ($135 billion) for the first time, reaching 36.3 percent of gross domestic product in June.

--Editors: Paul Richardson, Ana Monteiro.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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