Resource News

South African Credit Demand Contracts as Unemployment Rises

Dec. 31 (Bloomberg) — South African credit contracted in November for the second time in 43 years as an increase in unemployment reduced consumer spending and banks curtailed lending.

Borrowing by households and businesses dropped an annual 1.59 percent after declining 0.4 percent in October, the Pretoria-based Reserve Bank said on its Internet site today. Borrowing was expected to contract 1.5 percent, according to the median estimate of 11 economists surveyed by Bloomberg.

South Africa’s economy shed 350,000 non-farm jobs in the nine months through September as the first recession in 17 years led mining companies such as Anglo Platinum Ltd. and Lonmin Plc to reduce their workforces. With increasing numbers of people defaulting on their mortgages and car loans, Absa Group Ltd., the country’s biggest retail lender, and other banks have tightened their lending criteria.

The contraction in credit extension illustrates “the collapse in business and consumer confidence,” Gina Schoeman, an economist at Macquarie First South Securities in Johannesburg, said in a note to clients before today’s data.

The Reserve Bank left its benchmark interest rate unchanged for a third consecutive meeting on Nov. 17 as rising energy costs threatened to boost inflation. The 7 percent rate is “adequate” to curb price increases and support economic growth, the bank said in a Nov. 18 report.

Consumer spending, which makes up two-thirds of demand in the economy, contracted for a fifth quarter in a row in the three months through September, the central bank said on Dec. 10. Household expenditure fell an annualized 2 percent after dropping 6 percent in the second quarter, it said.

The broad M3 measure of money supply rose 0.58 percent in November from a year ago, after gaining 2.7 percent in October, the Reserve Bank said…read more at the Bloomberg