South African households showed increasing appetite to take out loans in August as economic activity resumed in earnest on the back of July civil unrest.
However, the corporate sector remained anxious about piling more debt amid rising producer prices and uncertain economic environment in light of the looming fourth wave of Covid-19.
The SA Reserve Bank (SARB) on Thursday said private sector credit extension maintained a positive growth rate in August, rising by 1.12 percent as base effects on last year’s collapse in credit were eroded.
This was above market expectations and the highest credit extension in six months, reflecting firmer economic activity as trading conditions normalised following the violent disruptions in July.
The SARB said August’s moderate increase was underpinned by credit extended to the household sector which grew by 5.7 percent, following a 5.3 percent rise in July.
Conversely, credit extended to the corporate sector continued to contract, albeit at a slower pace, falling by 2.4 percent following declines of 2.9 percent and 5 percent in July and June, respectively.
Investec economist Lara Hodes said the corporate sector was still uncertain about the strength of the economic recovery, which makes it risk averse to taking out loans.
“A subdued economic environment and uncertainty around the timing and strength of a recovery continues to dampen business confidence levels, hindering corporate sector activity,” Hodes said.
“Indeed, a further 165 business liquidations occurred in August, evincing the effect of the pandemic-induced lockdowns on corporates.”
Asset-based credit remained the key driver, supported by low interest rates and modest improvements in household income.
Nedbank senior economist Nicky Weimar said credit growth will gradually improve off last year’s low base, buoyed by household demand, with continued support from modest growth in disposable income and low interest rates.
Weimar, however, said the unfavourable jobs market will partly limit the upside, which was weighing on consumer confidence and credit demand.
“Corporate loans will also pick up as some companies affected by the riots in July start to rebuild,” Weimar said.
“However, the unfavourable and uncertain economic environment will weigh on investors’ risk appetites, reducing the willingness to embark on investment projects.
“Subdued credit growth will mitigate against demand-pull inflationary pressures.”
Meanwhile, inflationary pressures to Producer Price Inflation (PPI) continued to be felt in August as well.
Data from Statistics South Africa today showed that prices for final manufactured goods rose slightly to 7.2 percent in August, from 7.1 percent in July.
The main contributors to the headline PPI annual inflation rate were coke, petroleum, chemical, rubber and plastic products; food products, beverages and tobacco products; and metals, machinery, equipment and computing equipment .
Prices for intermediate manufactured goods increased to their highest level this year at 17.7 percent in August.
Chief economist for the Don Consultancy Group (DCG), Chifi Mhango, said rising PPI rate for industrial inputs was concerning.
“A high PPI rate especially for inputs related products is a concern for the industrialisation of the South African economy considering that inputs costs are rising higher than final manufactured product prices,” Mhango said.
“It’s even more concerning for the consumer inflation rate outlook if producers pass on costs to consumers through pricing of final manufactured goods.”
BUSINESS REPORT ONLINE