SA household finances are in dire straits
Wage increases for workers in both the private and public sectors moderated to 4.7 percent in 2018
THE SOUTH African Reserve Bank (Sarb) yesterday painted a bleak picture of household finances, saying household expenditure had tanked for the first time in three years.
In its Quarterly Bulletin for June, published yesterday, the central bank said consumption expenditure by households had fallen by 0.8 percent in the first quarter of 2019 following a 3.2 percent increase in the fourth quarter of 2018 as the economy wanes.
The economy is on a downward spiral with gross domestic product contracting by 3.2 percent in the first quarter of 2019 – the largest contraction since the first quarter of 2009 when it contracted by 6.1 percent, at the height of the global financial crisis.
The Sarb said the deterioration in household consumption was in line with the decline in consumer confidence in the first quarter of 2019, as measured by the First National Bank/ Bureau for Economic Research Consumer Confidence Index.
The Sarb said consumers’ finances had been under pressure due to the prolonged period of weak economic activity, rising unemployment, an increased tax burden and successive fuel price increases.
“Growth in the real disposable income of households was weighed down by lacklustre employment growth and slower wage growth,” the Sarb said.
The ratio of household debt to nominal disposable income inched lower to 72.5 percent in the first quarter of 2019, from 72.7 percent in the fourth quarter of 2018, as the quarter-to-quarter increase in nominal disposable income exceeded the increase in household debt.
However, households’ cost of servicing debt as a percentage of nominal disposable income remained at 9.3 percent for a second successive quarter as lending rates remained unchanged.
The bulletin indicated that wage increases for workers in both the private and public sectors moderated to 4.7 percent in 2018, the lowest level since the Sarb started keeping records in 1971.
The central bank said that the growth in private sector nominal remuneration per worker decelerated from 4.3 percent in the third quarter of 2018 to an all-time low of 3.7 percent in the fourth quarter.
It said on average, private sector wage growth slowed from 5 percent in 2017 to 4.5 percent in 2018.
Ian Cruickshanks, an economist at the South African Institute of Race Relations, said wages reflected a low economic growth trajectory and higher inflation.
“Broadly speaking, labour unions who are asking for higher than inflation increases are going to be disappointed. It is less difficult for employers to stick to their guns and say there are more job-seekers than those people who are employed,” said Cruickshanks.
PricewaterhouseCoopers chief economist for Africa Lullu Krugel said while the slowdown in private sector remuneration growth was positive for businesses – growth in nominal unit labour cost declined to an 11-year low in 2018 – it was not good for the consumer economy.
“A decline in real household expenditure contributed 0.5 percentage points to the 3.2 percent quarter-on-quarter decline in gross domestic product during the first quarter of 2019. This reflects the worsening condition of household finances,” Krugel said.
“Hopefully, positive, definitive measures outlined by the president in his recent State of the Nation address will bolster policy certainty and to some degree, consumer and business confidence, which are required to drive fixed investment and therefore growth and employment,” said Lora Hodes, an economist at Investec.