Household finances in South Africa expected to improve – but recovery will be slowed by lockdown: Nedbank

Household finances will improve marginally during the year as disposable income will be supported by the gradual recovery in economic activity, Nedbank economists said in a research note this week.

However, the pace of increase will partly be contained by subdued investment activity and rising Covid-19 infections, which will result in the imposition of strict lockdown restrictions, the group said.

“Companies are still recovering from the financial damage caused by last year’s lockdowns, which together with excess capacity, subdued domestic demand and unreliable power supply, is making them hesitant to expand operations.

“This will limit job creation and therefore income growth. A notable increase in household finances should be expected once corporate profitability has been restored and balance sheets have strengthened enough to encourage private firms to resume fixed investment spending.”

Disposable income up slightly 

Economic activity continued to recover in the first quarter of 2021, boosting household finances, Nedbank said.

“Less restrictive lockdown measures under level 3 ensured that most economic activities returned to near normal operations, which supported income growth. Personal disposable income (PDI) rose by 2.3% y-o-y, which, together with low interest rates and subdued inflation, pushed household consumption spending (HCE) higher.”

However, both PDI and HCE are still below pre-crisis levels but have shown notable improvement, Nedbank said.

“HCE rose by 4.7% over the quarter, slower than 7.5% in the last quarter of 2020. Although all the subcategories of spending recorded growth, the highest contributors were durable and semi-durable goods.”

The slower rise in spending reflected fragile consumer confidence on the back of a gloomy economic outlook, a slow vaccination drive and job losses, which caused consumers to be cautious of taking on more debt, Nedbank said.

“At the same time lending institutions were also reluctant to lend aggressively. As a result, the debt to disposable income ratio was almost unchanged at 75.3% from 75.4%. The ratio of debt service cost to disposable income was also steady at 7.7%, the lowest since the first quarter of 2006, as interest rates remained at a historic low.”

Read: It’s not all doom and gloom for South Africa – but there is a catch: economist

Must Read

Partner Content

Show comments

Trending Now

Follow Us

Household finances in South Africa expected to improve – but recovery will be slowed by lockdown: Nedbank