Can’t rely on spend

December holiday payments data from BankServ Africa this week injected a mildly bright note into a consumer spending picture that has been pretty bleak lately. In-store card spend was 13% up on the year before, even though in terms of volume, shopping was up a modest 2%, and much of the lift came from grocery and supermarket spending. The cash economy was not as strong: banks’ orders for cash to stock up their ATMs were down 3% in December, BankServ’s numbers show.

But December’s strong card-shopping data is welcome after retail sales figures for earlier months showed that consumers had not been faring well. Stanlib economist Kevin Lings predicts retail activity will be in recession for 2023 as a whole, recording a decline of 1%-1.5%.

In the past consumer spending has been a mainstay of SA’s economy, through years in which investment consistently disappointed. But in an environment of high inflation and high interest rates, households are going to take pain. And that is especially so since employment has risen in recent quarters, but it has only recently regained pre-Covid levels.

Household disposable income has declined in real terms, and the latest Reserve Bank data shows debt costs are consuming almost 9% of disposable income. With inflation coming down, the Reserve Bank should have space to start cutting interest rates at some point later in 2024, and that will relieve some of the pain.

Ultimately, though, household fortunes will revive only once the economy starts to pick up. Meanwhile, we have to hope that the revival of private investment driven by renewable energy will continue to support the economy through tough times.