Summonses to individuals declined by -24.7% year on year (y/y) in May, while civil judgments to persons declined by -17.0% y/y in the month. Although the lower interest rates and inflation have contributed to reduced debt stress among households, this improvement seems to have done little to improve household disposable income in the economy due to the high debt-to-disposable income ratio that still persists, and which stands at 76.0%.

One suspects that slower household credit growth over the past year, partly attributable to interventions introduced by the National Credit Act, has assisted in reducing the debt stress at the household level. Nevertheless, the improvement in debt stress is not likely to translate into a remarkable recovery in domestic consumption any more than we have seen so far this year. Consumption is expected to remain level in the short to medium term, having weakening effects on consumer markets and trade GDP in the remaining quarters of the year. Financial sector GDP is also likely to be dragged down by lower household credit extension growth, currently averaging at 7.0% y/y in contrast to over 20.0% y/y just two or three years ago.

As with households, subdued credit demand seems to be the major driving force behind the decline in debt stress among businesses. Summonses to businesses declined by a stronger -45.0% y/y in May, following a -24.8 y/y contraction in April, while judgments declined -17.5% y/y in the month. However, credit extension to businesses has been marginal throughout the year so far, averaging at 3.0% on a year-to-date basis. The slow growth in business credit is telling of the declining business confidence among managers, with both the Kagiso/BER purchasing managers' index (PMI) and the FNB/BER business confidence index trending downwards during the second quarter. Despite the decline in business judgments and summonses, one will not be surprised to see a rise in voluntary liquidations in the short to medium term, which could be discouraging to investors.