Was World Cup enough to turn the corner?

Beyond the World Cup frivolity, there are additional signs of recovery if one considers that Standard Bank, SA's largest credit provider experienced more than 20% growth in new credit accounts within its credit card division, as well as positive indications in consumer spending patterns. The increased expenditure has largely centred on sporting goods, electronics and clothing, expected during the football frenzy.

The release of positive growth in credit demand locally of 0.8% year-on-year, the first positive trend in eight months, has not done enough to entice market proponents to suggest a full blown recovery but rather elicited responses that describe the recovery as tenuous and protracted.

Credit demand could increase

David McAlpin, CEO of PIC Solutions, a specialist credit risk solutions company in the EMEA region, commented that a similar indication has surfaced in US credit data. "Over the month of April an annualised 0.5% in consumer credit was reported by the US Federal Reserve, as well as a marked upswing in non-revolving credit in the USA of 7.1% annualised," he said.

"However, revolving credit demand decreased by 12% during this time. Locally, comments by SARB governor Gill Marcus have prompted the possibility of an additional rate cut at the next monetary policy meeting, which may serve to strengthen the resolve of consumers to demand more credit."

An indicator of positive credit growth, namely a reduction in bad debts, was also prevalent according to the Standard Bank Card Division. McAlpin added that credit providers were seeing an overall reduction in non-performing loans. "This is borne out of the fact that as early as last year there was an easing of requirements for home loans and that most credit providers are cautiously beginning to grow their portfolios again."

Factors such as unemployment are still a significant challenge for South Africa, as well as the current weakness of European trading partners. Additionally manufacturing, one of the historical drivers of future economic activity, has slumped. Measured by the Purchasing Managers Index, the number came in at 48.4, implying a contraction in manufacturing.

As with most of the numbers used to estimate the current economic climate, new vehicle sales show a positive trend and suggest a recovery in this sector, but from a low base from the previous year and are therefore arguably quite normal but heartening. It is encouraging that an increase of 20.7% year-on-year was experienced in a difficult trading environment, increasing to 39 931 units sold.

Positive outlook, JSE rally

Drivers of inflation such as commodity prices, the price of oil and the level of the Rand against its main trading currencies have been quite stable and the outlook for households positive. Local cost factors such as electricity will however play its part in the months to come, as the recent increases in the price of electricity impacts on inflation.

If one were to take some signal of what the current sentiment may be, one could hardly ignore the trading on Africa's largest stock exchange. The JSE is experiencing elevated levels of volatility now. Over the past three months fluctuations of over 6% in a month have been experienced, perhaps an indication that uncertainty rather than confidence is ruling the roost in the market place, and perhaps also at this juncture the sentiment of the average consumer.