By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Mortgage lending is recovering
A significant driver of credit growth during the reference quarter was a rebound in mortgage lending, which increased by 18.9% q/q. This suggests renewed confidence in the housing market, supported by easing political uncertainty and anticipated interest rate cuts. Despite this quarterly surge, the overall year-on-year decline of 4.6% points to a housing market that is recovering rather than outperforming. While lower interest rates could boost mortgage demand, stricter lending criteria and high default rates remain obstacles.
Consumption credit: A mixed bag
Secured credit, which includes vehicle finance, remained relatively flat with a 1.0% q/q increase. However, within this category, credit for the acquisition of furniture and other durables delivered another quarter of strong performance, rising by 9.2% q/q in 2Q24. This renewed outperformance aligns with strong retail sales for furniture and appliances in the last few months and may, in part, be fuelled by a replacement cycle as more consumers now spend more time at home, thus reducing the lifespan of household contents.
Meanwhile, unsecured credit declined by 0.3% q/q, reflecting growing lender caution about consumer financial health. Interestingly, short-term credit—a segment typically used by consumers for smaller, immediate needs—rose by 3.4% q/q and by an impressive 31.9% y/y. This suggests that more consumers are turning to short-term loans, possibly due to limited access to other forms of consumption credit. While short-term loans can provide quick relief, they often carry higher interest rates, raising concerns about debt sustainability for households already under financial pressure. In addition, credit facilities such as credit cards and store cards, increased by 4.2% q/q. This reflects growing consumer reliance on revolving credit to manage their finances. However, the high credit application rejection rate of 68.03% highlights the challenges many consumers face in accessing new credit.
The implications of these trends for consumers are mixed. Those with access to mortgage and secured credit may benefit from improved market conditions and lower interest rates. However, reliance on expensive, short-term, and unsecured credit poses risks for financially vulnerable households. Many unsecured loans are not tied to prime lending rates, so lower interest rates may offer limited immediate relief. This uneven credit recovery highlights the risk of over-indebtedness for certain consumer segments, emphasising the importance of careful financial planning.
Week in review
Retail sales continued their positive streak in August, surging to 3.2% y/y from 1.7% in July (revised from 2.0%). The outturn represents the sixth consecutive month of expansion and exceeded Reuters expectations for a 2.1% increase. On a month-on-month basis, volumes increased by 0.5% from the 0.2% decline in July. This outcome adds credence to our view of a better consumer environment in 2H24, aided by declining fuel costs, uninterrupted energy supply since March, and recovering consumer sentiment.
Year-to-date, retail sales have increased by 1.3% compared to the same period last year, indicating a gradual improvement in consumer spending. In the short term, the introduction of the two-pot retirement system could provide temporary relief to financially strained consumers, potentially boosting shopping activity. Despite these positive developments, the broader consumer environment remains challenging. High unemployment rates and restrictive credit conditions continue to limit consumer spending power. However, the medium-term outlook is more encouraging. As inflation subsides and interest rates gradually decline, consumers can expect to see increased discretionary income, supporting their spending. Furthermore, the easing of domestic political uncertainty should contribute to stronger asset prices, bolstering consumer balance sheets.
Week ahead
On Tuesday, the leading business cycle indicator for August will be published. In July, the leading business cycle indicator increased by 0.7% m/m to 113.6 index points from 112.8 in June. This translated to a 4.0% y/y increase. Six out of the ten constituent variables increased, with the largest positive contributions from trend growth in job advertisement space and the number of new passenger vehicles sold. Meanwhile, a narrower interest rate spread, and lower export commodity prices made the largest negative contributions.
On Wednesday, data on consumer inflation for September will be released. Headline inflation softened further to 4.4% y/y in August, falling below the target midpoint of 4.5% and down from 4.6% in July. Monthly headline inflation was marginal at 0.1%, as minor contributions from food and electricity were offset by fuel deflation. Core inflation also slowed to 4.1% y/y from 4.3% previously, with no monthly pressure. Electricity price inflation increased by 0.2% m/m and 11.5% y/y. Average fuel prices fell by 0.5% m/m and were up by only 1.8% y/y. Food and non-alcoholic beverages inflation lifted slightly to 4.7% y/y from 4.5% in the previous month. We expect headline inflation to fall below 4.0% in September, recording 3.8%, as weak domestic demand keeps core inflation contained and falling fuel prices support lower transport costs.
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 16 Oct | SA | Retail Sales % m/m | Aug | 0.5 | -0.2 |
| Retail Sales % y/y | Aug | 3.2 | 1.7 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 22 Oct | SA | Leading Indicator | Aug | -- | 113.6 |
| 23 Oct | SA | CPI m/m | Sep | -- | 0.1 |
| SA | CPI y/y | Sep | -- | 4.4 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 86,582.35 | 1.4% | 4.3% | 20.3% |
| USD/ZAR | 17.67 | 0.9% | 0.5% | -6.9% |
| EUR/ZAR | 19.14 | 0.0% | -2.1% | -4.3% |
| GBP/ZAR | 22.98 | 0.5% | -0.8% | -0.3% |
| Platinum US$/oz. | 992.19 | 2.6% | 1.1% | 12.0% |
| Gold US$/oz. | 2,692.55 | 2.4% | 4.8% | 38.2% |
| Brent US$/barrel | 74.45 | -6.2% | 1.0% | -18.6% |
| SA 10 year bond yield | 9.98 | 1.9% | 4.4% | -15.1% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 1.0 | 1.9 | 1.9 | 2.2 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.4 | 2.3 | 2.1 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -0.8 | 5.4 | 3.9 | 5.3 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.5 | 4.3 | 4.7 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.4 | 5.0 | 4.6 | 4.5 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.50 | 18.20 | 17.50 | 18.20 | 18.80 |
