Economics Weekly
By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole & Ame Muller
South Africa's latest monetary data points to an economy where liquidity conditions remain relatively supportive despite a modest growth environment. Broad money supply (M3) growth moderated to 9.3% year-on-year (y/y) in June from 9.6% in May, while private sector credit extension (PSCE) eased to 7.8% y/y from 8.6% previously. Despite this moderation, both indicators continue to point to healthy growth in liquidity and credit, suggesting that domestic demand remains relatively resilient even as the broader economy faces headwinds.
Household credit continues to recover gradually rather than accelerate sharply. Growth edged up to 4.9% from 4.7%, supported mainly by vehicle finance and a recovery in unsecured credit, particularly general loans and advances. These categories tend to be closely linked to discretionary consumer spending, suggesting that household demand remains resilient despite weakening confidence. Mortgage credit growth remains comparatively subdued, although it to has continued to trend higher. This suggests that households remain broadly cautious about taking on long-term leverage, with balance sheet repair rather than rapid debt accumulation remaining the dominant theme.
This is broadly consistent with developments in the consumer sector. Lower debt-servicing costs relative to recent peaks, healthier balance sheets and earlier gains in purchasing power have supported borrowing demand. However, consumer confidence weakened in the second quarter, while households continue to face pressure from elevated living costs and labour market constraints. As a result, the recovery in household credit remains measured, reflecting a degree of caution despite improving financial conditions.
Corporate borrowing remains the primary driver of overall PSCE, although it slowed in June, from 11.8% to 10.2%. Demand for credit has largely been supported by working-capital requirements, inventory accumulation and investment opportunities in selected sectors. This suggests that firms continue to require financing to support day-to-day operations and, to a lesser extent, capital expenditure, despite an environment characterised by weak confidence and moderate economic growth.
The combination of solid money supply growth and resilient PSCE suggests that domestic demand should remain supportive of economic activity through the remainder of 2026. While both money supply and credit growth moderated in June, they remain at levels consistent with supportive financial conditions rather than a material tightening in credit availability. As such, the latest data continues to point to a gradual expansion in economic activity. Although sustained growth in liquidity and credit warrants monitoring from an inflation perspective, the recent moderation in both aggregates suggests that current monetary conditions remain broadly consistent with a balanced economic recovery rather than excessive demand pressures.
Overall, the continued divergence between cautious household borrowing and strong corporate credit demand suggests that the recovery remains uneven, with business financing continuing to drive overall credit growth while household demand improves only gradually.
Week in review
The leading business cycle indicator declined by 0.3% month-on-month (m/m) to 118.2 in May, although annual growth accelerated to 4.2% from 3.9% previously. The monthly decline reflected decreases in five of the ten available components, which outweighed gains in the remaining five. The largest negative contributors were a decline in the RMB/BER Business Confidence Index and a decrease in the number of residential building plans approved. In contrast, the main positive contributors were faster trend growth in the real M1 money supply and an increase in new passenger vehicle sales.
Producer inflation slowed to 7.5% y/y in June, down from 7.8% in May. On a monthly basis, producer prices declined by 0.1% following a 2.6% increase previously. Coke, petroleum, chemical, rubber, and plastic products were the biggest contributors to headline inflation, while notable increases also emerged in categories such as paper and printed products and metals, machinery, equipment and computing equipment.
