Backs turned on credit

Johannesburg - Credit demand from South Africa's private sector likely contracted again in the year to November, with households and companies still feeling the weight of past interest rate increases and the economic downturn.

Data last month showed credit demand dipped 0.42% year-on-year in October, the first time it has shrunk since 1966 as the economy slowly gets back on its feet after a recession that slashed nearly 1 million jobs.

A Reuters poll of 10 economists on Thursday showed private sector credit extension was expected to fall by 1.55% year-on-year in November.

"The employment outlook remains the biggest hurdle to the rebound in credit demand yet," said Alvise Marino, an emerging market analyst at IDEAglobal.

Analysts say consumers remain wary of new debt despite the central bank reducing interests rates by a cumulative 500 basis points since December last year.

The cuts, aimed at helping an economy that fell into its first recession in 17 years at the start of the year before exiting it in Q3, unwound rate increases implemented between June 2006 and June 2008 as the bank sought to tame inflation.

The Reserve Bank has however left interest rates unchanged at its last 3 policy meetings, citing the likelihood of renewed price pressures next year if state power utility Eskom gets the go-ahead for steep tariff increases.

In its Monetary Policy Review last month, the central bank said domestic economic recovery would be slow but that the current level of interest rates was "adequate" to help growth.

The Reuters survey found that growth in the M3 measure of money supply was expected to slow to 0.45% year-on-year in November after growing by 2.67% in October.

The trade account was seen recording a narrower deficit of R3bn compared with R6.7bn the previous month, although the number is generally volatile and hard to predict.

Forecasts for November ranged from a shortfall of R8.3bn to a much smaller one of R1.5bn.

"We expect the trade balance to remain wide... in November given recent oil price and currency moves," said Nomura International analyst Peter Attard Montalto.

"We see import growth accelerating as the domestic economy recovers in manufacturing and inventory terms in particular."

- Reuters