The release of the September SARB Quarterly Bulletin makes the economic and household sector picture for the 2nd quarter of 2009 more complete. But this is not to say that the picture is a good one.
Real disposable income showed even more extreme negative growth than in the first quarter despite slightly less real economic contraction in the quarter, and it remains clear that the result of severe pressure on incomes is that the household sector is battling to “de-leverage” despite a sharp cut-back in new borrowing. Our “Debt-Service Risk Index” therefore remains at high levels as a result of the ongoing high level of overall indebtedness, and has actually risen mildly over the past 2 quarters. The most recent quarter’s rise was due to the diminishing scope for further interest rate reduction. The most recent 2nd quarter reading of 6.3 is still lower than the 7.1 risk peak reached in early-2006, but it is nevertheless on the high side, given a multi-decade average of near 5. So, while interest rate cuts have helped improve the household financial and debt servicing situation somewhat, it is a “HIGH RISK” improvement in credit quality due to the ongoing high level of indebtedness.
For more, go here: Household Credit Risk_September 2009.pdf