Is there light at the end of the economic tunnel for battered SA consumers?
As we sit at our desks and get ready for the year ahead, it is important to reflect on the year that was – were we as South Africans better or worse off in 2018?
This specific analysis will be conducted from the point of view of the SA individual and will only focus on the most significant factors that impact the average consumer’s life, namely, economic growth, cost of living and employment.
2018 began with the wave of “Ramaphoria” reaching its peak and optimism surrounded the SA economy.
As the year progressed, this wave slowly died down with the realisation that the economy had contracted by 2.6% in the first quarter of 2018.
A large number of the seeds that led to the contraction had already been sewn before President Cyril Ramaphosa was sworn in.
Unfortunately these seeds were still present when the economy entered a recession and it was announced that the economy contracted by 0.7% in the second quarter of 2018.
During a recession, a number of factors impact negatively on consumers.
Typically, the value of the local currency is placed under pressure.
Depreciation of the currency results in the price of im- ported goods rising and can impact on the cost of living depending on how large an individual’s exposure to imports is.
Unemployment is another issue that comes to the fore during a recession.
Fortunately, SA has exited the recession and recorded 2.2% growth in the third quarter of 2018.
COST OF LIVING
This economic factor is arguably the factor that most affects the consumer as it directly affects the basket of goods that a person can consume.
The average inflation rate in 2018 was 4.6%, well within the SA Reserve Bank’s inflation target.
However, there was an increase in inflation since the first quarter of last year.
The inflation outlook, together with the need to attract additional investment into the economy, has recently prompted the Reserve Bank to increase the repo rate by 25 basis points to 6.75%.
This rate is forecast to increase to 7.5% by 2020.
Most SA consumers are exposed to credit and so will be affected negatively.
According to the 21st Century Increase report, the median salary increase given to employees in 2018 was between 6% and 7%.
This means that in real terms, 2018 was a good year for those who had a job (if they received a similar increase to the median increase) since the inflation rate was around 5%.
Employment has historically been a challenge for the SA economy and is arguably the largest social ill facing the country.
In comparison to the third quarter of 2017, the unemployment rate has reduced from 27.7% to 27.5%.
Although the change is only marginal, it represents a step in the right direction.
Reducing unemployment has a multitude of benefits to the economy, such as increasing the tax base, reducing the need for social grants and providing more consumers with increased purchasing power – which further stimulates the economy.
If SA is to overcome the challenge of its persistently high unemployment rate, large scale, long-term investment is required to provide sustainable employment opportunities.
The three factors discussed above paint a picture of an economy that has struggled over the course of 2018, but that has performed reasonably well given the difficult econom- ic conditions.
Unemployment and the cost of living have been kept in check to a large extent and can even have been said to have performed well given the recessionary period SA faced.
In 2019, the inflation rate is expected to move closer to the Reserve Bank’s upper limit of its inflation target and average at 5.5%.
Economic growth is expected to return to the economy, although at subdued levels, and is expected to grow at 1.9% in real terms.
These two statistics represent good news for the economy’s recovery, although signifi- cantly larger growth is required to provide opportunities for the 27.5% of the population of working age that are unable to find employment.
The efforts of Ramaphosa and his investment task team (R110bn investment) will play a pivotal role in creating sustained, long-term economic growth at levels sufficient to erode unemployment and increase employment.
ANXIOUS NOTE: The average man / woman in the street cannot get far with a R20 note these days and they are all hoping for improvement