Household debt hits record high in 2006 fourth quarter

South Africa's household spending increased marginally to 7,75percent year on year in the fourth quarter of 2006, remaining robust despite higher interest rates.

South Africa's household spending increased marginally to 7,75percent year on year in the fourth quarter of 2006, remaining robust despite higher interest rates.

The sustained expansion in household spending was broad-based and proceeded at a roughly similar pace in all the spending categories, the reserve bank said in its quarterly bulletin released yesterday.

Gross domestic expenditure, which includes government spending, jumped to 12,25percent in the fourth quarter compared with 1,5percent previously, bringing the increase for the year as a whole to 8,75percent, it said.

A three-year consumer spending boom has helped to lift economic growth to about 5percent of gross domestic product (GDP), but has also added to inflationary pressures.

This helped to prompt the reserve bank to hike interest rates by two percentage points in the second half of 2006, and while it kept the repo rate steady at 9percent last month, spending remains a serious concern for the bank.

The reserve bank said that spending growth by households in fourth quarter was slightly up on the 7,25percent growth in the previous period and brought the increase for 2006 to 7,25percent.

This brought household debt as a percentage of disposable income to a new record of 73,75percent from 73percent previously.

Reserve Bank Governor Tito Mboweni has warned consumers to curb spending and last week described household debt levels as being "on the dangerous side".

The bank said that gross savings declined to 13,75percent of GDP from 14,25percent previously, which reduced the 2006 savings ratio to an historical low of 14percent of GDP.

This reflected "a sustained strong propensity to consume," according to the bank.

"After allowing for depreciation, the household sector's consumption exceeded its income in the calendar year 2006, resulting in the first ever net negative saving by the household sector for a full year.

"Simultaneously, the household sector debt relative to disposable income reached a new high of 73,75percent in the fourth quarter," it said. - Reuters

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