Households increased consumption in the fourth quarter of 2018, while household debt also rose in October, November, December, according to the South African Reserve Bank (SARB).
The SARB released the March 2019 Quarterly bulletin on Wednesday painting a grim picture of the economy in 2018.
The annual gross domestic product (GDP) growth came in at 0.8% for 2018, falling far below the 20 year average of 2.8%. Global growth has slowed and it became even more uneven in the fourth quarter of last year.
Locally, credit growth increased from a recent low of 3.8% in May 2018 to 6.3% in January 2019. This was despite the implementation of the International Financial Reporting Standards making it more difficult to extend credit.
There was also sluggish economic growth weighing on consumer sentiment. Credit extension to the household sector grew by 4.6% on average in 2018 to R165bn compared to only 2.6% in 2017 or R156bn.
The SARB’s money and banking unit head Danie Meyer said that the category of household credit which increased the most was general loans, mostly unsecured debt.
The household debt levels are increasing from a very low base, according to Meyer after the imposition of new rules by the National Credit Regulator and should not be seen as problematic.
Meyer said households could be taking on credit for several reasons such as being under financial pressure.
The Reserve Bank’s quarterly release also showed a moderate uptick in households making use of overdraft facilities. This category of credit, however, comprises only 2.9% of total loans to the household sector.
The growth in credit to companies shows a different picture to households and was “fairly weak and erratic,” according to the Reserve Bank. “A sustained improvement in consumer demand and business confidence is needed to boost corporate demand for credit,” the Reserve Bank’s report read.
Meyer said that general loans are the strongest category of credit for businesses and it is usually used to finance normal capital expenditure. This is quite slow alongside the current economic conditions, according to Meyer. Credit extension to the real estate and construction sectors was relatively buoyant throughout much of last year, despite low growth in property prices and relatively weak building activity.
Growth in credit extension to the wholesale and retail trade sector was resilient and credit demand by the mining sector increased. However loans to the finance, insurance and businesses services sector decreased in some quarters of the year as economic activity remained sluggish.
The quarterly bulletin looks at past economic figures and Michael Kock the Reserve Bank’s head of statistics said he could not quantify the impact of load shedding on the economy. “It’s obvious it will definitely have an impact on economic activity,” Kock said. The Reserve Bank is expected to comment further about the effect of rotational power cuts on economic growth after next week’s Monetary Policy Committee (MPC) meeting.