The economy could be in negative territory by the end of the year as distressed consumers slide deeper into debt. Consumers were worse off in the third quarter than at any time since 2009 – a year in which the economy contracted by 1.7 percent, according to Bernadene de Clercq, the head of personal finance research at Unisa’s Bureau of Market Research (BMR). And the outlook was bleaker because the economy is showing little sign of regaining momentum.
De Clercq yesterday presented the BMR’s third-quarter consumer vulnerability index in Johannesburg. The index is based on a Finscope survey of consumer behaviour between June and August. It also draws on the All Media and Products Survey (Amps) by the SA Audience Research Foundation into living standards, and data from the National Credit Regulator.
The findings showed that consumers had fallen further down the index to 47.9 in the third quarter, from 48.6 in the second quarter and 58.9 points in the first. The lower the score, the more vulnerable consumers are.
De Clercq said consumers were increasingly relying on unsecured loans, which had nearly doubled over the past three years as a percentage of their total loans – from 28.3 percent to 54.2 percent.
The value of unsecured loans was relatively small and defaults would not pose a threat to the banking system, according to Carel van Aardt, a research director at the BMR. But he said millions of low-income people would be affected, which would create social and political instability.
This has already been demonstrated in the Rustenburg area, where thousands of miners had more debt than they could afford, according to research into the profile of the income group, “within which most striking miners fall” – those earning between R60 000 and R150 000 a year.
Van Aardt described this group as “very exposed in terms of their cash flow” and said they were increasingly relying on unsecured loans, which cost 2.2 times more to service than the secured loans they obtained in 2009. Debt costs increased despite the 2.5 percentage point fall in prime over the period.
Miners, unable to service their debt and desperate to increase their income, started a series of unprotected and often violent strikes in August.
This event changed the economic outlook and the pace of growth started to slow, Van Aardt said. By the fourth quarter, the economy could be contracting as the strikes continue and thousands of workers face a “no work, no pay” policy.
Moreover, the miners’ situation is likely to worsen. Van Aardt predicted mass dismissals as mining companies struggled to recover from the disruption to output.
The survey of 3 500 households showed the income group into which the miners fall was relatively well off, scoring 50 on the index, while the average score was 47.9. Van Aardt pointed out that the survey included the unemployed and social grant beneficiaries.
A striking feature of the survey was that, among households generally, spending grew at a faster pace than income.
The survey also revealed that 100 percent of the income group into which the miners fall had television sets and a fridge, while 85 percent had microwaves and music centres.
Spending will eventually slow when credit sources dry up. Consumption traditionally makes up about 60 percent of gross domestic product. Without strong consumption growth, the economy will falter, particularly as export revenues fall.