Lower spending shows that consumers are financially vulnerable

SOUTH African households spent 1 percent less in the first nine months this year compared with last year as consumers remain financially vulnerable because of incomes increasing at lower rates, high levels of indebtedness and low savings rates.

The Quarterly Bulletin released by the South Africa Reserve Bank (Sarb) on Friday showed that household consumption expenditure grew by 1.1 percent year-on-year in the first three quarters of the year compared with 2.1 percent in the same period in 2018.

Unemployment reached its highest rate in more than a decade in the third quarter, leaving South Africa with one of the highest unemployment rates in the world at 29.1 percent.

The attacks on Saudi Arabia’s oil facilities in mid-September also caused oil prices to temporarily surge by about $10 (R145) per barrel, increasing the prices of consumables.

Investec economist Kamilla Kaplan said consumer confidence remained depressed during the period as a result of slow growth.

“The decline in household spending is reflective of depressed consumer confidence which undermines consumers’ willingness to spend,” Kaplan said.

“The ability to spend has been affected by rising unemployment, slower wage growth, low rates of credit expansion and higher living costs, particularly for electricity and water.”

The Sarb said growth in real final consumption expenditure by households moderated from 2.6 percent in the second quarter of 2019 to only 0.2 percent in the three months to September.

The bank said the pace of increase in real spending on services and, in particular, durable goods slowed, while fewer semi-durable and non-durable goods were purchased.

Real household spending on semi-durable goods contracted by 1.3 percent in the third quarter, following an increase of 4.2 percent in the second quarter.

Consumption expenditure on non-durable goods decreased marginally by 0.3 percent in the third quarter of 2019 after increasing by 2.2 percent in the previous quarter.

This was consistent with slower growth in households’ real disposable income and weaker consumer confidence.

Real household consumption expenditure on services increased by 0.5 percent in the third quarter following an increase of 1.2 percent in the second quarter.

Household balance sheets remain constrained, reeling from the weight of slowing wage growth and rising costs.

Gross domestic product (GDP) contracted by an annualised 0.6 percent in the third quarter after rebounding by a slightly revised 3.2 percent in the second quarter.

Household debt as a percentage of nominal disposable income decreased slightly in the third quarter, with households’ net wealth also decreasing as the market value of assets was impacted by lower domestic share prices.

Lara Hodes, another Investec economist, said lacklustre economic growth underpinned by structural inefficiencies and policy uncertainty was fuelling the country’s mounting unemployment predicament.

“As a result demand remains muted, weighing on household consumption expenditure, which makes up around 60 percent of the country’s GDP reading, with consumption growth anticipated to remain constrained over the medium term.”