THE ECONOMIC WEEK AHEAD: Key data due on borrowing, manufacturing
THIS week, local markets will have two important economic indicators to digest: private sector credit and the purchasing managers index (PMI), a reliable health gauge for the manufacturing sector.
Figures due from the Reserve Bank today are expected to show that growth in borrowing by households and private companies accelerated to 8,7% last month, compared with 7,9% previously.
The type of growth is likely to be the same as seen earlier this year - credit extension to companies is gathering momentum while household borrowing continues to be driven by unsecured lending.
There have been some eyebrows raised at the rapid growth in unsecured lending, which consists mainly of credit card spending and bank overdrafts.
The Bank put those fears to rest last week by saying that the extent of unsecured lending had not created a credit bubble and was not a threat to financial stability.
Stanlib economist Kevin Lings says the figures suggest that consumers are supplementing their shrinking disposable income with credit to finance spending on discretionary items.
"The general thought is that the consumer is under a lot of pressure from the cost increases coming through in electricity, transport, education and food prices. All of that is eating into available income," he says.
"The choice for the consumer is whether to ease up on other forms of spending or supplement it a bit more with credit."
According to the National Credit Regulator, unsecured lending leapt by more than 50% in the third quarter of last year, compared with the same quarter in 2010.
But the Bank has pointed out that local banks' exposure to unsecured credit was R334,9bn by the end of last year - which was only 8% of their total exposure.
The pick-up in borrowing by companies seen over the past few months is a very welcome development, as it feeds into investment and economic growth.
Corporate credit extension rose by 10,1% in February compared with the same month last year, after rising by 8,7% in January. Household credit extension rose by 6,6%, up from 6,1% in the same period.
Healthy expansion in private sector borrowing is an essential component of economic growth, provided it does not climb to unsustainable levels.
SA's PMI for this month, due on Wednesday, is likely to show that manufacturing activity continued to expand during the month, albeit at a slower pace.
Consensus forecasts from Bloomberg show that the PMI is expected to decline to 53,6 from 55,1 last month. That will nonetheless be the fourth month in a row that the PMI posts a reading above 50, the cut-off point between expansion and contraction.
"The PMI will show whether the strong momentum in the manufacturing sector will be sustained," says Renaissance Capital economist Elna Moolman.
According to the latest official data from Statistics SA, manufacturing production grew by 4,1% in February compared with the same month last year, up from 2,3% in January.
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