SA consumers are in for a tough time as recession, fuelled by political instability and constant calls for “radical economic transformation”, bites in a vicious cycle expected to further deflate low growth and consumer confidence.
This was the view of several independent and bank economists who yesterday laid the blame for the technical recession at the door of the government, cautioning consumers to tighten their belts and pay down debt to build up savings with further credit downgrades to junk status and possible tax hikes to boost revenue looming if a third quarter of contraction occurred.
However, one potential positive outcome for indebted consumers was that slower than expected growth figures could prompt the SA Reserve Bank to reduce interest rates sooner than expected.
The economy entered a technical recession following two successive quarters of contraction of 0.7% in the first quarter of 2017 and 0.3% in the fourth quarter of 2016, according Statistics SA’s GDP report released on Tuesday.
Poorly performing sectors included trade, catering and accommodation, retail sales and restaurant sales, although agriculture and mining grew. Real household expenditure dropped 2.3% for the period and the World Bank adjusted its growth outlook for the country to 0.6%, down from its 1.1% forecast in January.
KPMG economist Christie Viljoen said a slump in consumer confidence was partly to blame for the recession.
“The weak GDP numbers will reinforce pessimism among consumers. This could potentially result in a vicious cycle where bad economic data causes hesitance to spend. For the second quarter we already expect weak GDP data due to the adverse impact that the cabinet reshuffle and ratings downgrades had on business and consumer confidence,” Viljoen said.
“Consumers and businesses need certainty on where the country’s politics and economic policy is going. In the aftermath of the cabinet reshuffle, ratings downgrades and talk about ‘radical economic transformation’ there is no certainty over what the local economy will look like in 2018,” he said.
FNB senior economic analyst Jason Muscat said consumers were likely to defer spending on big items like vehicles during a recession.
“Consumers are clearly under pressure and not spending, and it’s possible that we are only now starting to see the impact of last year’s three interest rate increases,” Muscat said.
Absa Stock Brokers and Portfolio Management chief investment strategist Craig Pheiffer said: “With low levels of confidence around future economic conditions, households prefer to pay down debt. When you believe conditions are going to be tough, you save your money rather that buy that new washing machine, car or house,” he said.
UKZN school of accounting, economics and finance lecturer, Ntokozo Nzimande, said: “Pulling South Africa out of recession requires investment, and, with recent downgrades, SA is no longer an attractive country to invest in.”