November 27, 2003

By Bloomberg

Johannesburg - South Africans were borrowing more to buy cars, houses and furniture after the central bank cut the benchmark lending rate by 5 percentage points to the lowest in 23 years to help revive growth, a survey of economists showed yesterday.

Borrowing by households and firms probably rose 19.35 percent in the year to October, from 18.8 percent in September, according to a median estimate of eight economists. The Reserve Bank will release the figures tomorrow.

The less than one in six of South African households that earn more than R7 800 a month are buying cars, houses and appliances after rate cuts helped push third-quarter annualised economic growth to 1.1 percent from 0.5 percent in the second.

"The rate cuts have increased disposable income and enhanced consumer confidence, which is good for us," said David Sussman, the chairman of JD Group, South Africa's biggest furniture retailer. Its sales rose more than 30 percent in the year to August.

The rate reductions by the Reserve Bank also helped the housing market. Real house prices rose an annual 15.1 percent in September, the fastest rate in more than 20 years, according to Absa, the biggest mortgage lender.

But economists said the majority of citizens had yet to join the spending spree as the unemployment rate is at 31.2 percent.

While consumer confidence among people earning more than R8 000 a month rose to a record in the third quarter, overall confidence dropped as the construction, mining and tourist industries shed jobs, the Bureau of Economic Research (BER) said.  

Manufacturers have fired thousands of workers after the rand rallied 83 percent against the dollar since the end of 2001.

"On the low-income side, employment conditions deteriorated because of the rand," said Linette Ellis, an economist at the BER.

"Lower rates will mainly stimulate the higher end of the market. At the low end, the usury rate that informal money lenders offer has come down much less."

While unemployment and the lack of available credit weigh on the poor, wealthier South Africans can resume purchases after years of belt tightening.

Household debt rose to 53.5 percent of disposable income in the second quarter, from 53 percent in the previous quarter, and down from the 60 percent-plus levels reached in 1998.

The central bank would probably cut interest rates further in December after inflation fell to 4.4 percent in October, said Nazmeera Moola of Merrill Lynch in Cape Town.

"This Christmas is going to be a good one for the top end because they are pretty sure of another interest rate cut," said Brian Weyers, the marketing director at Shoprite.

"It is definitely quieter at the lower end."