South Africa is ‘treading water’: Nedbank

Nedbank says the South African economy is not seeing meaningful growth, but a recovery in credit demand should soon happen.

According to Nedbank’s latest assessment of the broad money supply and credit for October 2024, growth in private sector credit extension (PSCE) slowed to 4.3% year-on-year (yoy) in October compared to 4.6% in September.

The Nedbank Group Economic Unit said that bills and investments tend to be volatile, falling by 6.7% mom in October, forcing the annual increase down to 2.8% from 6.5% in September.

Loans and advances (which excludes bills and investments) slowed to 4.4% yoy from 4.5% due to slower growth in household loans and stagnant growth in company loans.

Household loans resumed their downward trend, declining from 3.3% yoy in August and September to 3.2% yoy in October.

“The softer trend was broad-based, suggesting that household finances remain stretched, still weighed down by the high interest rates,” said the Nedbank Group Economic Unit.

Home loan growth slowed from 2.4% to 2.3%, while vehicle finance (instalment sales and leasing finance) softened from 7.4% to 7.3%.

The slump in personal loans deepened, dropping to 1.2% after contracting 1%

Transactional credit also lost momentum despite informal reports of increased consumer spending.

Credit card usage increased 9.1% from 9.9%, while overdraft growth slowed to 0.4% from 1.1%.

Corporate credit growth, which includes bills and investment, dropped to 5.2% yoy from 5.7%.

“The loans and advances component held steady at 5.6% yoy. Slowdowns in vehicle finance and overdrafts were balanced by faster growth in general loans, commercial mortgages, and credit cards.”

“Significant base effects continued to impact the outcomes for most categories, contributing to volatile swings from one month to the next.”

“General loans, which consist of unsecured credit to companies, normally used to finance capital expenditure, rose to 4.5% off a low base last year, up from 3.8% in September.”

Commercial mortgages also improved for the fourth consecutive month, rising from 4.6% in September to 4.9%.

Credit card usage also rose to 2.4% from 2.1%. In contrast, overdrafts slowed from 17% to 13.1%.

However, vehicle finance eased off a high base to 6.2% from 6.6%.

Outlook

“October’s credit numbers are disappointing, suggesting the economy is still treading water. Even so, the fundamentals needed to bring about a recovery in credit demand are starting to fall in place,” said Nedbank.

“Rapid disinflation and easing interest rates will eventually reduce the pressure on household finances.”

“The Reserve Bank has already lowered interest rates by 50 basis points (bps), and we expect a cumulative 75-bps reduction in 2025, which will gradually lift household credit demand.”

The latest GDP figures highlighted the challenges facing South Africa’s economy, with GDP contracting by 0.3% in Q3 2024 – far below estimates of 0.5% growth.

An additional boost could also soon come from access to contractional savings via the two-pot retirement system, which should start to appear in the credit numbers in December.

“As consumer demand improves and global growth picks up, corporate credit demand should also gain moderate upward traction.”

“Altogether, we expect credit growth to end the year at just below. 4% before accelerating to 5.8% by the end of 2025.”

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