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Recovery still fragile

Total vehicle sales continued to recover in June, pushed up by an increase in passenger cars, while commercial vehicle sales also picked up strongly during the month. However, the rebound over the past two months was insufficient to compensate for the large decline in April, with sales in the quarter down over the first quarter. Private sector credit demand fell in May, reflecting a fragile recovery.

SALES WILL BENEFIT Nedbank says passenger car sales will benefit from low interest rates and income growth over second half 2011, although high household indebtedness, a weak labour market and the risk of higher interest rates will restrict the rate of recovery. The gradual recovery in fixed investment activity should support sales of commercial vehicles. Sales of commercial vehicles reached their highest levels in June since November 2008.

EXPORTS RISE Vehicle exports increased by 14,7% month-on-month and 23,5% year-on-year in June after dropping by 8,8% year-on-year in May. Exports rose by 2,8% quarter-on-quarter in the second quarter, a 7,9% rise compared to the same quarter in 2010 as exports of passenger vehicles were down by 2,7% year-on-year after rising by 35,4% over the first quarter.

CREDIT DEMAND SLOWS Private sector credit extension increased by 5,2% year-on-year after rising by 6,2% in April and against the market consensus of a rise to 6,4%. Households remained the main driver of credit growth, with household credit up. Corporate credit demand fell. Credit growth is expected to improve further over coming months, with household demand likely to drive a moderate improvement in overall credit extension.

STILL CAUTIOUS Corporate demand for credit will remain relatively subdued, with businesses probably hesitant to expand operations too aggressively given lingering uncertainties about the strength of South Africa’s and global recoveries, significant power and transport infrastructure constraints and ample spare capacity in some sectors. Both households and businesses remain cautious, indicating little pressure on inflation from credit spending.
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