Economic dark clouds gather

File photo: Siphiwe Sibeko.

File photo: Siphiwe Sibeko.

Published Jul 3, 2015

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Johannesburg - The outlook for South Africa’s economy is becoming bleaker, with consumer confidence plunging to the lowest in more than 14 years in the second quarter as power outages, rising unemployment, and increasing petrol prices dented sentiment.

Results from the FNB/BER consumer confidence survey released yesterday show consumer confidence nosedived to a 14.5-year low in the second quarter to reach a level of minus 15, which was the index’s largest drop since 2008 at the height of the credit crisis.

Market expectations were for the figure to minus 4.

Domestic consumer expenditure is closely linked to the current account which has a shortfall of 4.8 percent of gross domestic product.

The latest index number is not only far lower than the lowest reading recorded during the 2008/09 financial crisis and recession, when it reached minus 6, but it is only the second time since South Africa’s first democratic election in 1994 that the index has dropped below minus 12 index points.

Weak growth

The news comes at a time when the monetary policy committee of the Reserve Bank is expected to hike interest rates at its meeting later this month amid weak economic growth, rising inflation and unemployment at an 11-year high of more than 26 percent.

Bart Stemmet, an analyst at NKC Research, said: “We struggled to find positive news headlines during the second quarter, with petrol and electricity prices rising (when the lights manage to stay on), a weak exchange rate, higher personal income tax rates, new labour laws (which deter job growth), and high levels of social and political tension.”

He said this meant it was really no surprise that consumer confidence had plunged to harrowing depths.

“Consumers are feeling pressure from all angles, exacerbated by the substantial household debt burden that has built up during the past decade. Unfortunately, the short-term outlook for the South African economy is similarly sombre amid an environment of weak global demand and expected interest rate increases.”

Kamilla Kaplan, an economist at Investec, said consumers downgraded their own financial prospects.

“Real disposable income growth lifted to 2.6 percent in the first quarter of 2015 from a prior 1.9 percent, but the boost to purchasing power, from low petrol and food price inflation, is receding. Petrol prices have risen by a cumulative R3.46 since February, while food price inflation is likely to lift in the second half on the effects of the maize price spike.”

The latest indicators show that the wheels are coming off the economy. New vehicle car sales have fallen by 4.8 percent year on year to 50 251 units, according to data released on Wednesday by the Department of Trade and Industry.

According to the Reserve Bank, the ratio of household debt to disposable income increased to 78.4 percent in the first quarter from 78 percent, while the debt service cost ratio rose to 9.4 percent from 9.3 percent over the period.

Growth in real spending on durable goods decelerated from an annualised rate of 5.3 percent in the fourth quarter of last year to 1.1 percent in the first quarter of this year – the lowest rate of increase since the second quarter of 2009.

The FNB/BER survey found the financial position and time to buy durable goods sub-indices declined by 9 and 12 index points respectively, while the economic outlook plummeted by 14 index points.

At lowest level

It said that with a reading of minus 24, the consumer rating of South Africa’s economic prospects was currently at the lowest level since the 1992/93 recession, when it was minus 25 index points.

Sizwe Nxedlana, the chief economist at FNB, said factors such as increased load shedding, a further depreciation in the rand exchange rate, the tax hikes, and the slowdown in government spending announced in the February budget already weighed down on consumers’ rating of the outlook for the domestic economy in the first quarter.

“Since the end of March, a barrage of adverse developments has now further dented consumer confidence regarding South Africa’s economic prospects. These include the explosion of xenophobic violence in Durban and Johannesburg in April, an additional 19 percent increase in petrol price, higher debt service costs and a rising unemployment rate,” Nxedlana said.

Consumer confidence levels had declined sharply across all the country’s population and household income groups in the second quarter, but the fall was particularly large for low-income households.

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