Posted to the web on: 14 December 2005
Retail demand slows amid rates rumblings 
Ayanda Shezi - Economics Correspondent

 
 
GROWTH in consumer demand slowed in September, as talk of an imminent interest rate hike in that period unnerved consumers.

Robust consumer demand helped propel economic growth to above 5% in the second quarter of the year, but the effects of an environment of low interest rates and low inflation had begun to wane, economists said.

Data released by Statistics SA yesterday show that retail sales — a key indicator of consumer demand — slowed to 4,7% year on year in September, from a revised 8,2% in August. In the three months to September, retail sales rose 5,5% year on year.

With interest rates at 24-year lows, and inflation at fairly benign levels, consumers have gone on a rampant spending spree over the past three years, pushing credit growth to multiyear highs.

“The strong rise in consumer activity (since 2003) was driven by a wide range of cyclical and structural factors including low interest rates, improved confidence and, most importantly, rising real incomes,” Stanlib economist Kevin Lings said yesterday.

As a result, credit-card debt was now growing 45% year on year, while mortgages are up almost 30% over the past year.

The Reserve Bank fuelled this strong growth when it trimmed interest rates by 50 basis points in April, citing concern about the prospects of the manufacturing and mining sectors, which faltered on the back of a strong rand.

The Bank’s latest quarterly bulletin shows that household debt as a percentage of disposable income rose to 63,5% in the third quarter, compared with 61% in the second quarter.

This is still relatively low compared with countries such as the US, Japan and France, all of which have a debt-to-income ratio greater than 100%, and analysts said the debt could be serviced so long as rates remained stable.

Household debt levels remained manageable, Brait economist Colen Garrow said.

Yesterday, Stats SA also reported that SA’s motor trade sales growth eased to a 14,7% year-on-year increase in September after an 18,6% rise in August and this year’s peak increase of 30,2% in April. Motor trade sales for the first nine months of the year increased 16,6% (2004: 18,1%).