JOHANNESBURG - Although it was not impossible, it was unlikely that South Africa would plunge into a technical recession in the second quarter of 2019 according to Dawie Roodt, Chief Economist at the Efficient Group following the massive 3.2% contraction in the economy in Q1.
He said typically economies tend to bounce back after large Q1 declines unless extraordinary conditions existed which he did not believe was the case.
“What is hugely important is that Ace Magashule stops contradicting the finance minister, Tito Mboweni in particular with regard to the so-called expansion of the Reserve Bank’s mandate to include job creation.
“If ever there was a time for the governing party to unite this is it otherwise consumers could end up paying a heavy price for the bickering that is going on in the highest ranks of the ANC.”
It was also vitally important to reduce the government’s wage bill to redeploy that money to stimulate the small and medium business sectors which was where real job creation should be taking place.
“At the moment the fiscus is paying vast sums of money to service the country’s massive debt and to paying the government’s colossal wage bill.
“This is neither sustainable not desirable because ultimately consumers – who are already at their wits end – are going to end up footing the bill for really bad economic policy, Roodt said.
Neil Roets, CEO of one of South Africa’s largest debt counselling companies, Debt Rescue, said it became evident that consumers were caught in a debt spiral when his company’s statistics division announced that there had been a 21% increase in applications for debt review in the first quarter of 2019 compared to the same period last year.
“All of the main economic indicators that we track show that things are going to get a lot more difficult before there is any chance of light at the end of the tunnel.
“With Eskom’s debt approaching R500-billion and the utility failing to sell enough electricity to cover its daily expenditures, it is going to be incumbent on consumers to keep it from imploding and sinking the country’s entire economy.”
Roets said the decline of the Rand and the lack of a clear plan about how government plans to reduce its expenditure could lead to increasingly tough times ahead.
“While President Ramaphosa’s new cabinet blows a breath of fresh air into the political landscape it remains to be seen whether it will be enough to placate the ratings agencies who may see Eskom’s spiralling debt as enough reason to downgrade the country’s sovereign bonds.”
Roets said for most South African consumers, budgets were already stretched to the limit and it is difficult to see where the money was going to come from to deal with the latest round of price increases that are going to follow hot on the heels of the latest fuel price increase.
“Most consumers have cut out luxuries from their spending some time ago and will now have to start cutting on basic necessities just to stay alive,” Roets said.
He predicted that another round of fuel price hikes would follow in July because of the weakening exchange rate and growing volatility in the price of crude oil.
Roets said it was also painfully evident from the rapid growth of Debt Rescue that a growing number of consumers were falling behind in debt repayments and resorting to the process of legal debt review.
“We are seeing daily records being set by the number of distressed consumers who are knocking on our door to be placed under debt review.
“There is absolutely no doubt that a growing number of South Africans have reached the end of their tether and are now turning the legally enforceable process of debt review.
This assists them to hold onto their property while paying off their debts in smaller amounts over a longer period of time.”
Overall there had been a 21% increase in applications for debt counselling comparing the first quarter of last year with the same period for 2019.
With gross consumer debt at around R1.73-trillion and the government’s gross loan debt at R2.2trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride, Roets said.
Roets said almost half of all consumers were three months or more behind in their repayments. The major culprits are credit and store cards followed closely by unsecured debt.