Consumers keep wallets closed

Pretoria - South Africa's household spending fell again in the third quarter of 2009, pointing to continued strain on consumers from high debt, although the rate of decline slowed as the economy exited recession.

The Reserve Bank said in its latest quarterly bulletin on Thursday household expenditure contracted by an annualised 2 percent compared with the previous three months after falling 6.1% in the second quarter.

Gross domestic spending was down 1.7% from a 12.1% decline before. This was supported by a sizeable increase in growth by government, due to the buying of military planes and infrastructure spend.

Africa's biggest economy emerged from nine months of recession in the third quarter, largely on a recovery in the manufacturing sector, but households remain under pressure with debt near record levels and jobs still being lost.

"Unlike the turnaround in the real gross domestic production, real gross domestic expenditure continued to deteriorate in the third quarter of 2009, albeit at a considerably lower rate than in the second quarter," the central bank said.

The drop in household spending was the fifth consecutive quarterly decline, with consumers still struggling to cope with the five percentage point increase in interest rate between June 2006 and June 2008.

While those rate increases, aimed at tackling inflation, have been unwound this year, it is taking time for households to recover after companies, particularly factories, cut jobs to navigate a global downturn and local recession.

Household disposable income fell 1.1% in the third quarter.

However, the Reserve Bank said there were signs of improvement, with debt ratios dipping and spending on durable goods inching higher.

Household debt to disposable income fell to 79% in the third quarter from a revised 80.1%, while debt service costs eased to 8.5% from 9.9% as the lower interest rates - the bank's repo rate is now at 7% -begin to be felt.

- Reuters