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By Kea' Modimoeng | Dec 01, 2009 | COMMENTS [ 0 ]

COMPANIES and households are still feeling the pressure of the global economic meltdown and the National Credit Act despite SA technically being out of recession, economists said yesterday.

This was in response to figures released by the SA Reserve Bank which showed that growth in demand for credit fell for the first time since 1966 in October, suggesting recovery from recession will be slow.

The economy emerged from its first recession in almost two decades in the third quarter but household and company finances remain tight.

Rising unemployment, high debt levels and tough trading conditions have curbed the appetite of companies and households for more loans.

"Essentially it is still a reflection of the corporate side. There is still a fall in credit on that side. It's also still a reflection of the weak state of domestic economic activity," Absa Capital macro strategist Ian Marsberg said.

Stanlib economist Kevin Lings said companies were still in tight financial spots and the fall in demand for credit confirmed that.

"Companies are obviously not expanding their businesses, some are cutting jobs and there haven't been any great efforts lately to building new capacity. This means companies don't need additional funding."

Investec Group's Annabel Bishop said: "Credit extension is expected to continue on a downward path as households and corporates continue to pay off short term debt."

She said the Bank was unlikely to cut interest rates at the next monetary policy committee meeting.

Other economists said the credit data highlighted the dire state of household and company finances and supported the case for another rate cut.

"We still think there is the possibility of another interest rate cut if activity is fairly slow during the festive season and with inflation in the target range," said Citadel economist Salomi Odendaal.

Consumer inflation was in the target band of between 3 and 6percent in October though there are worries this could be temporary with higher electricity costs looming.

In its Monetary Policy Review two weeks ago, the Bank said the current level of interest rates was "adequate" to help the economy.

"I see no other route but to cut rates ... ," Brait economist Colen Garrow said. - Additional reporting by Reuters


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