Is there light at the end of the eco­nomic tun­nel for bat­tered SA con­sumers?

Weekend Post (South Africa) - - This Week You’re Saying... -

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.

ECO­NOMIC GROWTH

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

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.

Bryden Mor­ton

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

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