Rates dent consumer spending
Posted Fri, 14 Sep 2007
The growth in household consumption spending over the second quarter of 2007 has slowed from an annualised rate of more than 7% to 5.5% as purchases of durable goods contracted, the South African Reserve Bank's (SARB) latest Quarterly Bulletin indicates.
"The interest rate cycle has been tightening since last year, so its no surprise that consumer durables which include motor vehicle sales have dropped," South African Institute of International Affairs economist Phillip Alves said.
Alves added that producer and consumer prices have been on the rise, and highlighted that it is the poorer households that are bearing the brunt of the price increases.
"It has been the lower income households in particular that have had to cut back on consumption, particularly maize and dairy. Price increases in these products would have had an immediate effect," he said.
South Africa's real economic growth has meanwhile also eased from an annualised rate of 4.75% in the first
quarter of the year to 4.5% in the second quarter.
The SARB has said they believe it is a rate that is probably well-aligned with the country’s current growth potential, although structural changes which may raise the potential growth rate further are currently in progress.
While the second quarter saw the construction sector record the fastest growth, while agriculture, financial services and transport also showed brisk growth.
However, growth in the manufacturing sector declined, as the production of vehicles responded to lower domestic sales along with a deceleration on several other sub-sectors.
"I think we're well on track, but unfortunately the South African economy is very open on the financial and trade side,” said Alves regarding the government's Accelerated and Shared Growth Initiative (Asgi-SA).
"We can't say what could happen between now and 2010."
South Africa's international trade deficit also narrowed significantly to 6.5% of gross
domestic product (GDP) during the second quarter, as overall import volumes declined despite a sharp rise in oil imports. This is an improvement as compared to the peak deficit of 7.8% of GDP during the final quarter of 2006.
"South Africa will be importing substantially more goods, and as part of Asgi-SA's infrastructural development plans, we will also importing more capital equipment machinery and raw materials," Alves noted, however.
Such machinery and raw materials will be used for development initiatives such as improvements to roads, railways and ports, including Gautrain and 2010 upgrades.
The SARB stated that the deficit on the current account continued to be more wholly financed by financial inflows from abroad, while growth in money supply remained at relatively high levels, reflecting continued strength in income and expenditure.
Source: BuaNews
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