South African households are under pressure, say economists at Nedbank, with the country’s economy starting off 2023 on the back foot.
Sifting through data published for the last month of 2022, the banking group noted a downturn in economic activity, while data from the South African Reserve Bank pointed to continued stress for households.
While November’s inflation numbers were encouraging – easing to 7.4% from 7.6% in October – food prices remain extremely high, rising at a double-digit pace.
Meanwhile, the Reserve Bank’s Quarterly Bulletin shows that real personal disposable income (PDI) declined by 0.2% qoq in Q3 2022, Nedbank said – a reversal of fortunes following three consecutive quarters of growth.
“The drop in real incomes probably reflected the erosive impact of higher inflation,” it said.
“After drawing down their savings over the previous three quarters, households opted to rebuild their financial buffers, lifting the savings rate slightly to 0.5% of PDI. The uptick in savings suggests that households have become more cautious, expecting economic prospects to weaken.”
Surprisingly, household indebtedness eased over Q3. The household debt to PDI ratio slipped to 62.8% after edging up to 63% in Q2 from 62.5% in Q1.
However, the sharp hikes in interest rates over this period meant that households used a greater portion of their income to service this debt burden, Nedbank said.
Debt service costs consumed 7.5% of disposable income in Q3, after creeping up to 7.1% in Q2 from 6.9% at the start of last year. Households’ net wealth position also deteriorated further, falling to 332.2% of PDI in Q3 from 338.7% in Q2, reflecting the drop in equity prices and stagnating house prices.
The latest credit numbers also point to slower growth in economic activity.
The stresses for households and consumers reflect in the wider economy, the bank said.
“Recent economic indicators paint a gloomier picture, reflecting a further loss of economic momentum. The weakness stemmed from persistent and prolonged power outages, continued inefficiencies at the country’s major ports, softer global demand, and tighter domestic financial conditions,” the economists said.
Mining production in South Africa shrunk, hit hard by load-shedding, with platinum group metals (PGMs), gold, diamonds, and manganese ore reporting the sharpest drops in production.
There was more bad news on the consumer front, with retail sales contracting – the main drag coming from lower sales of hardware, paint and glass, as well as pharmaceuticals. Higher sales
of textiles, clothing, household furniture, appliances, and equipment contained the downside, the bank said.
“Despite the disappointing outcome in October, retail sales likely picked up over November as many retailers reported record Black Friday sales, probably amplified by bargaining hunting amid increased strain on household incomes,” it said.
Looking into the first few weeks of 2023, Nedbank said that manufacturing production and new vehicle sales data will give an indication of how the country will be kicking things off for the new year.
The bank said that continued load-shedding over the last few months likely disrupted production, pointing to expectations of a decline of around 1.3%.
Meanwhile, new vehicle sales usually decline over December as consumers prefer to wait for the new year’s registration and new models, it said.
“We forecast a 3.6% mom drop, limiting the annual increase in total sales to a relatively healthy 17.9% in December, only slightly down from 18.3% in November.”