High interest rates leads to tighter belts across SA
September 14, 2007
By Tonny Mafu
Johannesburg - Growth in South Africa's gross domestic spending slumped to only 1 percent in the second quarter, from 5.75 percent the previous quarter, according to the SA Reserve Bank's Quarterly Bulletin.
Total domestic spending in the economy consists of household consumption, government expenditure and gross fixed capital formation. The bulletin showed that growth in all three categories had dwindled.
Household consumption expenditure grew at only 5.5 percent in the second quarter compared with 7.5 percent the previous quarter. This component rose by 8.25 percent in the first quarter of last year.
The Reserve Bank said the slowdown in consumer spending was attributed to a contraction in the purchase of durable goods, where expenditure fell by an annualised rate of 10 percent in the second quarter.
The decline in the purchase of cars was cited as a particularly significant factor, on the back of problems in the E-Natis system, higher prices for motor vehicles, higher interest rates and the introduction of the National Credit Act.
Consumers also cut back spending on recreation and entertainment. Expenditure in this sector is normally discretionary, with less spent when interest rates are higher and spending power falls.
While in the past consumers were emboldened by cheaper credit, the Reserve Bank said the increase in household debt slowed to R39.6 billion in the second quarter from R48.4 billion in the previous quarter.
A decrease in installment and lease credit was cited as the cause for the slower growth.
However, mortgage loans continued to power ahead, helping to raise the ratio of debt to disposable income from 76 percent to 76.5 percent.
Meanwhile, government expenditure declined by 3 percent in the second quarter, compared with an increase of 14 percent in the previous quarter. This was attributed to a lower wage bill as a result of the public service strike.
Gross fixed capital formation, which includes fixed investment in the economy, experienced slower growth in the second quarter.
It expanded by 14.25 percent, far shy of the 21.75 percent increase in the first quarter.
Capital expenditure declined among both public corporations and private businesses. Private sector fixed investment diminished by 0.5 percent.
Fixed capital expenditure by public corporations grew by only 16.25 percent in the second quarter, compared with the huge leap of 85 percent in the first quarter.
On a more positive note, when expressed as a proportion of gross domestic product, fixed capital formation in the second quarter rose by 0.75 percent.
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