Economic conditions have broadly normalised with almost all lockdown restrictions lifted and this will support the modest recovery in employment and income growth during the year, says Nedbank.
However, the bank warns that household finances will be under the cosh in the coming months as the lagging effect of inflationary pressures and rate hikes are felt more keenly.
“Household finances will remain under pressure in the short term, with the purchasing power of disposable income eroded by the rising cost of living, particularly surging prices of essential items such as food and fuel due to the Ukraine/Russian war,” the bank said in a research note on Wednesday (29 June).
“At the same time, the Reserve Bank is hiking interest rate aggressively in response to mounting inflationary pressures, and administered prices continue to pressure households.”
The bank added that a significant improvement in household finance will be achieved with higher employment growth, although this is unlikely to be experienced in the short term, given that slow policy reforms and persistent power shortages, among other structural issues, have weighed on the private sector’s appetite to increase capacity and fast-track employment.
“Economic activity continued to normalise as the government ended the state of emergency and terminated most of the lockdown restrictions. This supported employment growth and boosted household earnings in the first quarter of 2022. Personal disposable income increased by a seasonally adjusted 1% quarterly (up 2.7% yearly) following a 2.5% rise in the final quarter of 2021.
“Spending in all categories of goods grew, but the most substantial rise was on durable goods, which increased by 3.5%, probably reflecting pre-emptive purchases of big-ticket items ahead of the expected series of interest rate hikes.”
Consequently, household debt also accelerated in the first quarter, Nedbank said. However, the ratio of household debt to nominal disposable income decreased to 64.5% from 65.1% as income grew by more than the rise in debt.
“Households’ debt service cost as a percentage of nominal disposable income increased slightly to 7.3% from 7.2%, reflecting higher debt and interest rate hikes during the quarter.”