The Credit Consumption Pattern in South Africa: A Trend Analysis

Abstract

While the developed countries witnessed a significant contraction in credit consumption in response to the financial crisis in 2008, South Africa’s household debt continues to be on the increase. This article is based on empirical research on the relationship between household debt and disposable income, net wealth, interest rates and inflation for the period between 1975 and 2013. Using regression analyses, the study examines the linkage between household debt and consumption spending in South Africa to capture the short-run and long-run dynamics. The results show that there is a significant relationship between household debt and disposable income, net wealth and inflation. Further tests indicate that there is a bidirectional causality running from economic growth to household debt and vice versa. However, it is revealed that there is no direct relationship between household debt and lending rates.