November 1, 2024

Private Sector Credit Extension (PSCE): October 2024

In September 2024, South Africa’s credit from financial institutions rose by 4.6%, nearing expectations, with strong demand for most credit types. Instalment credit sales grew by 0.5%, highlighting consumers’ adaptability amid rising living costs. Anticipated interest rate cuts may further enhance property and asset acquisition in the future!

Credit extended by financial institutions in South Africa grew by 4.6% in September, following a 4.9% increase in August 2024. This growth was slightly below the market expectation of 4.8% for September. Demand for credit increased across most sub-categories, except for mortgage advances, which experienced a small contraction. This category is sensitive to interest rate changes, and a reduction in rates is anticipated to stimulate growth in the coming months, as households and businesses will have more disposable income after a predicted interest rate cut in November.

Instalment credit sales rose by 0.5% in September, up from 0.4% in the previous month, while this category saw a year-on-year increase of 7.4%. Over the past 24 months, it has become clear that consumers are increasingly relying on short-term credit to manage rising financial pressures and the escalating cost of living. This trend is further evidenced by a 5.0% rise in loans and other advances.

Asset accumulation through property and fixed asset purchases remains modest, with mortgage advances growing by 3.1% in September, slightly up from 3.0% the previous month. The growth rate for mortgage advances has notably decreased in the latter part of 2023, largely due to the impact of higher interest rates on the property sector. The expected 25-basis point reduction in interest rates, along with another likely cut in November 2024, should enhance demand for properties and fixed assets. Notably, only when lower rates are implemented across the economy will we see a significant increase in disposable income and fixed asset acquisitions.

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Gross Operating Surplus

Company is crucial for investors and the government, influencing investment potential and tax revenue. The latest data from Statistics South Africa shows a 2.9% quarterly decrease in Gross Operating Surplus (GOS) but a 4.5% annual increase, indicating profitability growth. Notably, sectors like mining and transport exceeded inflation rates, signaling positive market sentiment and potential for increased investment in South Africa over the medium to long term.

South African Economic Performance

South’s economy unexpectedly contracted by 0.3% in Q3 2024, with six out of ten sectors growing. The agricultural sector significantly declined by 28.8%. Positively, manufacturing and finance showed growth, contributing to overall resilience. However, consumer demand and elevated prices in the economy remain concerns, while expected growth for 2024 is estimated at just 0.7%. Addressing policy clarity and structural reforms could enhance business confidence and stimulate growth.

Private Sector Credit Extension (PSCE)

In October 2024, credit extended by South African financial institutions rose by 4.3%, with increasing demand in most categories, despite remaining low overall. Recent interest rate cuts totaling 50 basis points may enhance property and fixed asset purchases in 2025 as consumers gain more disposable income, potentially boosting overall demand.

Producer Price Inflation

Producer Price Inflation in South Africa saw a deflation of 0.7% in October 2024, exceeding analysts’ expectations. This decline was driven by significant price drops in coke, petroleum, and related products. While overall inflation may remain low in the short term, rising costs for intermediate goods and administered prices raise concerns. Persistently low inflation could lead to interest rate cuts, potentially boosting consumer and business demand in 2025.

Another 25 Basis Point Interest Rate Cut

The South African Reserve Bank cut the interest rate by 25 basis points, contrary to some expectations for a larger reduction. Inflation remains within the target range of 3% to 6%, and positive signs for growth include rising confidence and stable electricity supply. Despite subdued manufacturing production, increased disposable income supports demand, contributing to a gradual economic recovery.