JOHANNESBURG (Sapa) - The decline in credit growth will continue in the months ahead, Nedbank Group’s economic unit said on Friday.

“Consumers will probably opt to use any increase in discretionary income from lower borrowing costs and petrol prices to pay down their debt and increase their savings before taking on additional credit,” the bank said.

Earlier, the SA Reserve Bank announced that growth in demand for credit by the private sector eased to 11.85 percent year-on-year in January from a revised 13.6 percent in December.

Nedbank said consumer confidence would need to bounce back before firmer spending became entrenched.

Much would depend on the impact of the global recession on the local economy, particularly employment.

“A more pronounced and protracted global recession could see domestic economic activity remaining depressed for longer,” Nedbank said.

“This could result in more significant job losses, putting a further dent in consumer confidence and keeping demand for credit subdued for longer.”

The sharp drop in commodity prices and significantly weaker global demand, had forced companies to put expansion plans on hold, which would feed through into lower credit demand.

Distress borrowing, particularly by those companies servicing the retail sector, might increase, Nedbank said.

“Companies may be forced to borrow in order to manage their balance sheets as stock sits on the floor and costs remain high.”

Nedbank said Friday’s credit figures along with the Gross Domestic Product data released earlier this week reflected a an economy “suffering both from a cyclical slowdown as well the negative effects of a global recession”.

Nedbank said the economy was now projected to grow at just 0.2 percent.

Inflation was projected to fall below six percent towards the middle of this year and stay there, due to a combination of lower oil prices, weak domestic demand and deflationary pressures from abroad.

“As a result, there is a strong case to be made for cutting rates aggressively in the short term,” Nedbank said.

However, the Reserve Bank would probably wait to assess early first quarter data before calling any extraordinary meeting of the MPC.

“In this regard, manufacturing and retail sales data towards the middle of next month could prove important.”

Over the course of the remainder of the year, Nedbank expected a 350 to 400 basis point decline in rates.