Spending edges up

2012-09-12 00:00

WHILE household spending growth declined only marginally in the second quarter of 2012, there are growing signs that rising administered prices, slower economic growth and declining job prospects are taking their toll.

The South African Reserve Bank’s latest Quarterly Bulletin, released yesterday, showed that the ratio of household debt to disposable income rose to 76,3% in the second quarter, compared with a revised 75,6% in the first quarter.

This ratio peaked in the first quarter of 2008 at 82,7% and has been on a steady decline in recent years.

Luckily for consumers, household debt service costs remained at very low levels, thanks mainly to what economists have described as “abnormally low” interest rates.

The government and state-owned entities came to the party, propping up spending in the economy through their wage bills, as well as capital expenditure projects.

Real gross fixed capital formation by private businesses (2,4%) paled in comparison to the growth rates achieved by public corporations (9,1%) and the government generally (15,7%).

Although household spending registered positive growth of 2,9% from 3,1% in the first quarter, the level was significantly down on the 2011 average of five percent.

However, consumers continued to spend on a number of categories of goods, including bigger-ticket items.

“Expenditure on durable and semi-durable goods recorded strong growth over the period, supported by favourable prices and financing costs,” the bank said in its bulletin.

“Spending on non-durable goods also rose steadily, but real expenditure on services recorded a modest contraction in the second quarter.”

John Loos, household and property sector strategist with FNB, told The Witness that an increase in the ratio of household debt to disposable income was a worrying factor and that consumers would begin to suffer in the event of significantly higher interest rates.

Few economists are expecting rate hikes soon.

In fact, Loos said, there was a chance of another rate cut in 2012.

Personal loans have been identified as a contributing factor to unhealthy higher household debt, but the Reserve Bank indicated that while they remained high, they had not been responsible for the increase in household consumption.

“Personal loans now account for 11% of total household debt, but have not led to excessive consumption expenditure,” said the bank.

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