JOHANNESBURG - The country's economy is set for its toughest period in 25 years in the medium term as the country's household debt remains highly elevated and demand remains subdued due to muted economic growth.
The SA Reserve Bank (SARB) said in its Quarterly Bulletin yesterday that household debt increased at a faster pace than disposable income in the fourth quarter of 2019.
It said the ratio of debt to disposable income rose slightly from 72.6percent to 73percent.
However, households’ net wealth still increased as the value of equity portfolios and housing stock increased at a faster pace than the increase in household debt.
“Real gross fixed capital formation contracted sharply in the fourth quarter of 2019, following two consecutive quarters of expansion,” it said.
“Consequently, the ratio of nominal fixed capital formation to nominal GDP declined further to 17.9percent in 2019 - the lowest since 2005.”
The country will tomorrow at midnight enter into a 21-day nationwide lockdown to contain the spread of the Covid-19, a necessary response that will have far-reaching economic ramifications.
Moody’s this week slashed South Africa’s 2020 growth forecast further to -0.6percent from a -0.3percent forecast in February.
The Institute of International Finance (IIF) said that the country's economy will contract a significant 2.5percent this year as the world economy entered a recession.
Investec’s Lara Hodes said their domestic growth forecasts had softened considerably due to the economic headwinds faced by the country.
Hodes said the global economic fallout and increased uncertainty caused by Covid-19, combined with our domestic situation which is marred by numerous structural inefficiencies, did not bode well for South Africa’s medium-term economic growth trajectory.
“We therefore do not anticipate a sustained pick-up in household consumption expenditure, especially in the medium-term,” Hodes said.
“Consumer sentiment remains depressed and this combined with an unemployment rate that has crept up to 29.1percent, further aggravates the financial pressure many households are already experiencing."
Hodes said business confidence was likely to remain depressed, further dampening fixed investment.
SARB said its composite leading business cycle indicator decreased by 0.3percent on a month-to-month basis in January 2020 as six of the ten available component time series decreased while four increased.
It said foreign direct investment inflows declined to R10.53billion for the three months to December compared with a revised R17.33bn in the previous quarter.
The bank said inflows for 2019 fell to R66.81bn from a five-year high of R72.12bn.