Picture: FINANCIAL MAIL
Picture: FINANCIAL MAIL

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GROWTH in spending by households and private companies accelerated while that by government slowed in the second quarter, supporting the expectation that economic growth and employment will be modest this year.

This is reflected in the South African Reserve Bank’s quarterly bulletin released in Pretoria on Tuesday. Improved spending by private companies in particular has been welcomed, as businesses have been blamed for holding onto billions of rand and not investing in projects that could grow the economy and create jobs.

Growth in spending by private businesses jumped to 4.4% in the second quarter from an annualised 2.8% before, supported by increased investment activity by agriculture, mining and manufacturing. Mining companies spent on machinery and equipment, while manufacturers spent on food, fuel and motor vehicle sub sectors among others.

Business Unity South Africa special policy adviser Raymond Parsons welcomed the growth in private business spending, but said it was still too early to say whether it represented a sustainable trend.

"On present evidence the pattern of modest growth, combined with a weak balance of payments position, is likely to continue for the time being, thus keeping the economy on a stable but low plateau," he said.

Growth in spending by households accelerated from an annualised 2.3% in the first quarter to 2.5% in the second quarter, the bulletin showed. This was in line with a FNB-Bureau for Economic Research consumer confidence index which rebounded from -7 to 1 in the second quarter of this year.

The Bank warned, however, that the pace of increase in household spending was still lower than the average rate of growth recorded in the past three years. The recorded increased spending on durable, semi-durable and non-durable goods could be explained by higher disposable incomes, according to the Bank’s head of economic reviews and statistics Johan van den Heever.

"There was an increase in households’ disposable income. We think that there were some increases in employment, which helped to support household income," he said.

Despite the good news on consumer spending, debt levels remain high. Household debt to disposable income rose to 75.8% in the second quarter from 75.4% before, indicating a large portion of household incomes still goes to servicing debt.