The three biggest risks every South African household faces in 2017
While South African consumers have lowered their debt-to-disposable income ratio over the years, they are not out of the woods yet – and need to be wary of three risks in 2017 to keep head above water.
This is according to FNB’s latest Consumer and Retail Barometer for Q1 2017, detailing the key consumer issues affecting the Household Sector in 2017.
“While economic growth is expected to be mildly better in 2017, this is not yet expected to be enough to turn Real Household Disposable Income growth positive on a per capita basis,” said FNB Household and Property Sector strategist, John Loos.
From an all-time high of 87.8% as at the 1st quarter of 2008, the Debt-to-Disposable Income Ratio has declined all the way to 74% by the 3rd quarter of 2016, according to the SARB.
There are several reasons for this – from cautious household borrowers, banks’ lending criteria, or the fact that the economic slowdown to date has not been as severe as that sharp slowdown of 2008/9.
Whatever the case, lower indebtedness relative to disposable income is nevertheless key in lowering consumer vulnerability, Loos said – but adding a warning that South African consumers are not out of the woods yet.
Loos detailed the three key areas of risk South African households should be on the look out for in 2017.
Taxation
A 1% real economic growth rate does not guarantee a 1% Real Disposable Income growth rate.
The weak economy of recent years has taken its toll on government tax revenue, and the Minister of Finance is looking for areas to boost revenues. Personal income tax has been a popular source of additional revenue in recent years, with Treasury effectively raising personal tax rates through not fully adjusting tax brackets for inflation bracket creep.
And so, whereas in 2004 personal and wealth taxes on households were estimated at only 10.9% of household income, by 2015 this percentage had risen to 15% (from 14.4% in 2014), and we would expect further increase in the 2016 numbers and in 2017.
Employment
In addition, employment trends tend to lag economic growth trends. Therefore, while economic growth may turn the corner mildly after a multi-year stagnation up until 2016, it is not that clear that the recent declines in employment are finished just yet.
Given that the domestic wage bill has grown at a faster rate than GDP for some years, eating into the country’s operating surplus, it seems that either wage increases need to be contained or employment numbers may disappoint.
Either way, 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.
Negative Per Capita Real Disposable Income Growth
A near 1% growth rate in Real Household Disposable Income would not represent positive growth in per capita terms.
With population growth estimated at around 1.3% as at 2015, and gradually accelerating, FNB believes 2016 per capita economic and real household disposable income growth may have already sunk into negative territory, and its projected growth rates for 2017 would translate into further negative growth this year.
The implications of negative per capita Household Disposable Income growth can go beyond merely posing spending constraints for the Household Sector to further fueling social tensions and political volatility, FNB said.
This can be significant in a year which will end with the ruling ANC’s elective conference.
And while it is virtually impossible to predict political events that may unfold, the build up to the conference through the year will no doubt be watched closely by the investor community, and any major negative political events can influence investor confidence and the rand, posing risks to any economic forecast.
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