South African Savings Rate at 11-Year High on Virus Uncertainty

(Bloomberg) -- South Africa’s national saving rate rose to an 11-year high in the first quarter as households and corporates were hesitant to spend in an economy that extended its longest downward cycle since World War II.

The rate of national savings as a ratio of gross domestic product climbed to 18% from 14.2% in the three months through December, according to the South African Reserve Bank’s Quarterly Bulletin released Tuesday. That’s the highest since 2010 and reflects caution among corporates in distributing dividends to shareholders and in the spending patterns of households amid uncertainty over the coronavirus pandemic, the central bank said.

The rate was driven up by higher savings by companies and households, which more than offset dissaving by the general government, the central bank said. Government dissaving increased to 3.8% of GDP in the three months through March from 2.7% in the fourth quarter of 2020.

Strict new measures to curb the spread of surging coronavirus infections, including a curfew extension, a ban on the sale of alcohol and outlawing of sit-down meals, could further weigh on investment and household consumption in a nation where almost a third of the workforce is unemployed.

A quarterly consumer confidence index published by FirstRand Ltd.’s First National Bank showed Monday that sentiment deteriorated in the three months through June after the government ended higher welfare payments and temporary relief measures for workers who lost their income because of the pandemic. Household consumption expenditure accounts for about 60% of GDP.

These are some of the other key points from the Quarterly Bulletin:

• Gross loan debt for the fiscal year through March 31 was 78.8% of GDP, according to the central bank bulletin. That compares with the National Treasury’s February budget estimate of 80.3%.
• The economy entered the 91st month of a weakening cycle in June, its longest since 1945. The last major declining cycle in the economy lasted 51 months between 1989 and 1993, when the former all-White government renewed a state of emergency and the country prepared for its first democratic elections. “Though we are still ‘officially’ in a downward phase, it is quite possible that the cycle has turned already, given the extreme depth of the contraction in economic activity in the second quarter of 2020 and the subsequent recovery up to the first quarter of 2021,” the central bank said in an emailed response to questions.
• There were foreign direct investment inflows of 6.1 billion rand ($427 million) in the three months through March, compared with inflows of 16 billion rand in the previous quarter.
• Portfolio investment outflows of 6.4 billion rand were recorded, compared with inflows of 24.1 billion rand in the fourth quarter.

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