Household debt good for South Africa?

Position:Economy of South Africa

Household debt is growing in South Africa (SA) and may reach record proportions, according to several news reports coming out of the country.

Household debt is one of those tricky analytical numbers. When growth is positive, inflation is under control, and Government spending is moderate, debt can improve the quality of life for consumers.

But when inflation gets out of hand, and the Government spends imprudently, then high household debt can be a warning sign.

The situation in South Africa is not so clear-cut, though. Africa's biggest economy has not had an impressive record with inflation over the past decade, a review of the statistics shows. In the late 1990s inflation was clearly out of control with the rate of inflation growing 8.7 percent in 1995, 7.3 percent in 1996, and 8.6 percent in 1997. Between 1998 and 2001, inflation stayed between 5.2 percent and 5.7 percent. But then in 2002, it spiked to 9.8 percent.

The average growth rate for GDP over the decade - including a 2005 International Monetary Fund (IMF) estimate - was 2.7 percent. And the average growth rate for individual incomes (PPP per capita) was 2.3 percent - meaning that per capita income was tracking GDP relatively closely.

Last year, according to a mid-March 2005 report in Business Day (Johannesburg), SA's economy grew 3.7 percent, continuing the longest SA expansion since World War II. In view of this kind of growth, it seems prudent to wonder if the expansion continues, and there is a consensus among economists and bankers that it will, what will the South African Reserve Bank (Reserve Bank) do with...

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