Johannesburg - Smoothed credit extension at a 40-year low is not a good sign for South Africa's economy. In 2006, all of the
talk was about reckless spending and easy debt, but now the opposite holds true
as credit data released this morning reflects an economy in distress and
consumers too scared to come out from under the eves.
Economist from Nedbank Carmen Altenkirch says her research shows that if
the volatile investments and bills discounted component is stripped out, then
demand is at around a 40-year low. This comes off credit extension of 19.5% a
year ago, to a current 3.40%.
And it is set to go even lower as consumers use the recent rate relief to
pay off debt and add to savings.
Altenkirch says she does not expect credit demand to turn until the middle
of next year as a result of these factors and as a result, the economy should
remain suppressed for longer this time than is usually the case.
A further slowdown in mortgage advances and instalments and leases can be
expected locally.
She feels another interest rate cut could be on the cards in October.
According to Altenkirch, the signs of a turnaround will only come once
there is an improvement in employment perspectives and confidence in the global
economy returns.
Data this morning showed credit extension to the private sector (PSCE) grew
at a rate of 3.40% year-on-year (y/y) in July from 3.98% in June, the South
African Reserve Bank (Sarb) said on Monday.
The rate of growth of South Africa's broad M3 money supply measure rose by
5.78% in the year to end-July from a revised 6.07% (6.04%) in the year to end-
June.
The rate of growth in South African credit extension to the private sector
(PSCE) was expected to have increased at 3.40% year-on-year (y/y) in July,
according to a survey by I-Net Bridge.
South Africa's broad M3 money supply aggregate growth rate, meanwhile, was
expected to have increased in July at 5.40% y/y.
Forecasts among the economists surveyed for PSCE ranged from 3.1% to 3.6%,
while the range of forecasts for M3 was from 5.0% to 6.3% at the top of the
range.
Economist from Metropolitan Asset Managers, Jaanre Fourie, notes that this
credit reading is the lowest level in more than five years.
"Other loans and advances increased by R7.3bn from June to July,
but all the other categories posted declines. The biggest decline came from
investments, which was R3.2bnlower in July than in June. The net
result was a R1.9bn increase in PSCE from June to July," she says.
Mortgage advances declined by R0.6 bn in July, bringing the y/y
rate down from 8.2% in June to 6.4% in July.
"This implies that the impact of the cumulative 500 basis points reduction
in the repo rate since December 2008 is not yet evident in the housing market
as consumers remain wary of taking on more debt," says Fourie.
-I-Net Bridge