South Africans get real on credit spending – just in time.

While South Africans are in for a rough economic year with imminent petrol price increases and predictable interest rate, electricity and water hikes, it seems our infamous credit card spending is headed in the right direction; that is, downwards. That’s the take home message in FNB’s consumer and retail barometer released this week and outlined in the story below. But it all comes at a price. Our gross national savings as a percentage of GDP declined from 16.7% in the second quarter to 16.4%, the main offenders being the usual suspects – government and consumers. Corporates however pushed their savings up from 13.6% to 14.6% between the second and third quarters, courtesy of lower dividend and tax payments. What implies better consumer discipline on credit spending is a bright light on a fairly dim 2017 economic horizon. Focus Economics’ team of economists and analysts have revised gross domestic product (GDP) growth expectations for the country even lower than predicted by government, suggesting that it might be as low 0.5%. Electricity and water supply constraints will hamper growth by interrupting production and discouraging investment, they add. Perhaps the best indicator of whether you are part of that new emerging credit wisdom is to check your bank balance after the seductive festive season siren calls of materialism. If it’s really low or in the red; it’s time to budget, budget, budget – and join the emerging trend… – Chris Bateman

By Lameez Omarjee

Johannesburg – Declining household debt has reduced households’ vulnerability to economic and interest rate shocks. As a result, consumer financial stress is not as high as levels reported during the global financial crisis in 2008 and 2009.

John Loos
John Loos, FNB

This is according to FNB’s consumer and retail barometer released on Tuesday. The report stated that household sector debt to disposable income ratio declined to 74% in the third quarter of 2016. This is down from an all-time high of 87.8%, reported in the first quarter of 2008.

Contributing factors to the decline in household debt include cautious borrowing by consumers and more stringent lending requirements by banks and financial institutions.

In the report John Loos, household and property sector strategist at FNB, explained that lower consumer stress was also as a result of the current economic slowdown not being as “severe” as that experienced during the global financial crisis. “Nor has the interest rate hiking cycle been of the same magnitude as that of 2006 to 2008,” he added.

According to the South African Reserve Bank quarterly bulletin for the third quarter of 2016, household disposable income increased from 1.7% to 2%, but households still felt financial pressure. Household expenditure increased at a slower pace and households were reluctant to take on more debt. Growth in household debt declined significantly from 75.1% to 64%.

“We do expect household credit growth to remain subdued through the year at rates where we could see further gradual decline in the Household Sector Debt-to-Disposable Income Ratio,” added Loos.

Even though lower debt levels are helping households withstand economic pressures, poor household savings remains a concern. Household savings as a percentage of gross domestic product fell from 1.2% in the second quarter to 1.1% in the third quarter. The net savings rate in the third quarter was still negative at -0.8% of disposable income, weaker than the previous quarter’s -0.6%.

Other risks to households include possible tax rate hikes. Weak economic growth has resulted in an under collection of tax. In 2004 personal and wealth taxes on households were estimated at 10.9%; by 2015 these rates increased to 15.5%.  A further increase is expected in 2017, added Loos.

Rising unemployment rates pose another risk. In an effort to curb rising unemployment rates, wage increases may also be contained. “That seems like a significant constraint on the consumer to come, and consumer financial constraints have already been seen in weak retail sales growth numbers late in 2016,” said Loos.

There is also a risk of negative per capita disposable income growth, which will add to spending constraints for households. – News24


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