Hard times for South Africans as disposable income shrinks
South African consumers are under intense pressure, with growing debt levels and less disposable income each month.
According to the South African Reserve Bank’s latest quarterly bulletin for Q2 2023, real personal disposable income (PDI) declined by 0.1% QoQ in Q2, following a 0.3% decline in Q1.
Bonuses and higher wage settlements slightly boosted household incomes, but the overall weakness was caused by slow employment growth in Q2, with 150,000 jobs created in the quarter, and elevated inflation during the period, as CPI averaged 6.2% in Q2.
The SARB also hiked interest rates aggressively during the period – with a 50 basis point hike in May – resulting in further strain on household budgets.
“Tight household finances and weaker economic prospects weighed on consumer confidence and prompted consumers to be more cautious about spending,” economists at Nedbank said.
“Consequently, consumer spending contracted by 0.3% in Q2 after two quarters of growth. Given the financial pressure, households were forced to supplement essential spending with credit.”
Seasonally adjusted nominal household debt also grew faster than disposable income, which pushed the debt-to-income ratio up from 62.3% to 62.5%.
Higher debt accumulation and higher interest rates also drove up debt servicing costs, with the ratio of household service cost to disposable income jumping to 8.8% – the highest level since the 8.4% in Q1 2017.
That said, households’ net wealth increased as the value of total assets outweighed that of total liabilities.
“However, the rise in net wealth was slower than disposable income. Consequently, the ratio of net
wealth to nominal disposable income dropped to 392% from 397%,” Nedbank said.
That ratio of gross national savings to GDP did increase further slightly from 14.3% in Q1 to 14.8% in Q1, which was lifted by corporate savings growing from 15% to 17%.
Although not to the same extent as the 2% recorded in 2022, households did increase their savings by a steady rate of 1.9% over the period.
The government, on the other hand, saw its dissaving increase from 2.6% to 4.1%, following the higher-than-expected spending due to wage hikes and poor revenue collection.
Predictions
Economists at Nedbank said that household finances will remain under pressure in the short term; however, a lower inflation number in the second half of 2023 will at least boost disposable income.
“The cumulative effect of the 475-basis-points interest rate hikes and higher administered prices will offset the benefit by limiting the funds available for discretionary spending,” Nedbank said.
“At the same time, consumer confidence will remain fragile as load-shedding undermines economic activity and threatens job security.”
Consumers will thus remain cautious of nonessential spending, which will limit dependence on credit.
Although sustainable improvements in household finance will be achieved through higher employment growth, this is unlikely to be achieved in the short term.
“With fading profits and poor growth prospects, more companies will likely opt to reduce costs, leading to the scrapping or postponing large capital expenditure plans,” Nedbank said.
“Investment spending, which can lead to employment growth, will be achieved by speeding up structural policy reforms and increasing power supply, among other issues.”
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