SA private sector credit in December expanded the most since July last year, surpassing market forecasts, but with the full impact of the Reserve Bank’s interest rate hikes yet to filter through the economy, economists warn the high-cost environment will continue to weigh on growth prospects.
That is sure to put pressure on the government in the lead up to general elections later this year as households remain constrained by high levels debt and a weak jobs market.
Data released by the Reserve Bank on Tuesday shows private sector credit grew by 4.94% year on year in December, surpassing market forecasts of a 4.1% increase and marking a 30th consecutive month of expansion.
The SA Reserve Bank has raised borrowing costs by a cumulative 475 basis points since in November 2021 in the wake of the Covid pandemic and has been steadfast in its commitment to keep rates “higher for longer” should inflation risks persist and price increases not move down to the midpoint of its 3%-6% target range.
Bank data confirms weakness in the household market continued on the back of higher interest rates, while poor economic prospects eroded household confidence.
Growth in household credit slowed to 4.3% year on year, the lowest since March 2021, from 4.8% in November. The Bank said the drag mainly came from home loans and overdrafts, where growth slowed to 3.5% and 1.6%, respectively.
Overdrafts contracted sharply by 4.6% after five consecutive months of weak growth. Instalment sales & leasing finance remained surprisingly resilient, with growth steady at 7% for a third successive month.
However, personal loans rose 4.2% and credit card usage accelerated, indicating that households resorted to credit to supplement spending on essential goods and services.
Jee-A van der Linde, senior economist at Oxford Economics, said the number highlighted households’ need for immediate financial relief in the tight lending conditions and that consumers are refraining from taking out expensive home loans.
“What’s more, ongoing load-shedding should continue to drive household credit growth as consumers and businesses invest in private electricity generation capacity,” van der Linde said.
Nedbank senior economist Johannes Khosa said the cumulative impact of the interest rate hikes will continue to filter through the economy and, coupled with fragile confidence amid poor growth prospects and heightened political uncertainty, will keep households cautious of borrowing and spending.
The overall increase in December came mainly from the bills and investments category, which rose by 3.2% month on month and 8.2% year on year after six consecutive months of contraction.
Corporate sector credit growth quickened to 5.3% year on year compared with 3.1% in November — and by R37.6bn month on month in nominal terms. The main drivers were an uptick in instalment credit sales, credit for investments, and mortgage advances.
Khosa said commercial banks are more cautious in extending credit, given the vulnerabilities of household balance sheets and rising defaults. Credit demand is likely to remain subdued in the first half of 2024, he added.
The Bank said the other loans and advances category, which is dominated by unsecured credit to households and companies, rose by 1.2% month on month, lifting the annual growth rate to 4.3%.
Growth in all the other categories remained modest due to the tough economic conditions. Mortgage growth decelerated to 3.5% from 3.8%, while instalment sales and leasing finance growth edged up to 9.9% from 9.7%.
Elna Moolman, head of macroeconomic research at Standard Bank, said the credit growth overshoot in December was underpinned by stronger-than-expected growth in the corporate sector’s general loans and advances. The data shows household credit growth weakened further both on a year on year and seasonally adjusted basis.
She said while credit trends haven’t been a key determinant of the Reserve Bank’s interest rate decisions in the latest cycle, the persistent weakness in that data “supports our expectation for a shallow interest rate cutting cycle from May 2024”.
Absa senior economist Miyelani Maluleke said a more sustained recovery in private sector credit extension seems unlikely in the near term as the Reserve Bank keeps monetary policy restrictive amid persistent upside risks to the inflation outlook.
Update: January 30, 2024
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