By: Ina Opperman
OUTLOOK: 2023 SET TO BRING EXHAUSTIVE COST-OF-LIVING PRESSURES
No happy new year for the South African consumer.
After looking forward to a year without restrictions, post-Covid, the hopes of consumers in 2022 were dashed when geopolitical issues caused global economic conditions that also affected local prices – of everything from fuel to food, forcing them to lose confidence in the economy and go deeper into debt.
Consumer confidence started 2022 off on a low due to the war in Ukraine as well as the associated humanitarian crises and its economic ramifications. It declined by four index points during the first quarter last year, from -9 to -13 – the same depressing level recorded in the second quarter of 2021, according to the FNB/BER Consumer Confidence Index (CCI).
In the second quarter, consumer confidence plunged to -25, the lowest in three decades after the -33 in the second quarter of 2020, when the sudden outbreak of Covid and Level 5 lockdown rules decreased sentiment.
Consumer confidence increased by only five points to -20 in the third quarter, but remained extremely depressed. This signaled a substantial deceleration in real consumer spending growth compared to the robust rates recorded at the start of 2022.
The fourth quarter saw a surprisingly strong rebound to -8 index points, bringing consumer confidence more or less in line with the same quarter in 2021.
Although a reading of -8 still signifies depressed consumer sentiment, the scope of the rebound came as a surprise given sustained high inflation, frequent load shedding, successive large interest rate hikes and the worsening global economic backdrop.
There is little to suggest it will be a happy new year on the financial front, not just due to the “Janu-worry” stress caused by the festive season splurge, but because South African consumers continue to face a perfect storm of economic conditions that threaten to overwhelm thousands of already overindebted consumers, Neil Roets, CEO of Debt Rescue says.
“Consumers are heading into the new year in a far worse position than they were a year ago and it is not going to get easier any time soon,” he said.
“Interest rates, fuel prices, seemingly ever-increasing electricity prices for a service we only enjoy about half the time, are growing at a far greater rate than the average salary,” Roets said.
He pointed out that although inflation had softened in November, inflation on transport skyrocketed by 15.3%, while food and non-alcoholic beverages increased by a staggering 12.5%. This is illustrated by the fact that the average price of a 2.5kg bag of maize meal was R34.08 in November. A year before it was R15.68.
With global supply chains under pressure due to the Ukraine war, South Africa was then hit by the Transnet strike, while load shedding became worse than ever. However, South African consumers are paying their debts despite economic pressures, although they also opened more credit accounts to get there, while lenders kept closer oversight by offering lower loan amounts and putting limits on revoloving credit to mitigate risk of nonpayment, according to the findings of the TransUnion Q3 2022 South Africa Industry Insights Report.
Consumers signed up for credit cards, nonbank personal loans, home loans and clothing accounts, with credit origins increasing by 14.5% year-over-year and applications for new credit by 13.1% in the second quarter.
Most income groups need about two-thirds of their take-home salary to pay debts with no meaningful increase in real income, facing rising interest rates and inflation. They will have to borrow more, according to Debt Busters’ 2022 Debt Index for the third quarter.
Consumers are inquiring more about debt counseling (30%) compared to the same period a year ago. Most were first-time buyers of assets, such as houses and cars, at a time when interest rates were at historical lows before November 2021.