Johannesburg - Disappointing data released on Friday show the economy is slowing as demand weakens, at home and abroad.
Data from the SA Revenue Service revealed the cumulative trade deficit – the gap between exports and imports – rose from R75.9 billion in the year to June to R89.37bn in the year to July after July exports grew 11 percent in the month while imports rose 18 percent. At the same time, credit growth slowed to 7.4 percent in July from 8.9 percent in June – a sign that consumers are spending less and businesses are not borrowing to invest.
And the situation is likely to worsen as strikes hit exports as well as business and consumer confidence in the weeks ahead.
A Barclays economist, Peter Worthington, said the figure for credit growth was a 15-month low and below Barclays’ forecast of 8.6 percent. He said the numbers reflected a “waning appetite for credit as employment growth in the economy remains pedestrian”. He also cited “tighter lending standards by financial institutions”.
He noted that growth in credit extended to households was steady at 8.7 percent in June. “But the three-month annualised growth in household credit extension is more reflective of short-term momentum, and this shows a moderation to 5.4 percent in July– the weakest since November 2011.”
FNB household strategist John Loos said households had been more resilient in earlier episodes of low growth, rand weakening and high inflation. He attributed the weakness to high levels of household debt. “In the final quarter of 2001, the household debt-to-disposable income ratio stood at 55.3 percent. By mid-2006 it was a higher 71.8 percent, while the most recent level at the first quarter of 2013 was 75.4 percent,” Loos said.
There is a positive spin-off. Nedbank noted that the subdued credit growth suggested demand-driven inflation was in check. In other words, modest demand for credit lessens the chances of an early interest rate hike, despite the weak rand and high oil prices. The Reserve Bank’s repo rate has been at the historically low level of 5 percent since July last year.
Loos said: “It is important to get some perspective on the latest ‘surge’ in oil prices and rand weakening.”
Though the petrol price this month will be marginally lower – at R13.50 for a litre of 95 octane in Gauteng from R13.55 last month – a recent run-up in the oil price and the slide in the rand point to hikes ahead.
But Loos argued that the moves would have a limited impact on inflation. “Should the rand average R10.50 to the dollar and Brent crude oil continue around $115 a barrel, the average rand-denominated Brent crude oil price would be up 28.6 percent year on year. This is higher than August’s estimated 16.7 percent year-on-year rise and would thus probably lead to further petrol price inflation.
“But this is still relatively mild compared to November 2011’s peak growth rate of 51.8 percent year on year, and even the aftermath of that surge took inflation only marginally above the 6 percent target limit in the few months thereafter. At nearly $115 a barrel, I wouldn’t call it an oil price ‘shock’ for the consumer yet.”
But he warned: “Consumers should be mindful of the heightened risks posed by the latest global events, as it need not end here.” - Business Report