Grim outlook for consumers

Johannesburg – While there’s some good news expected at the petrol pumps next Wednesday, it will be short lived and the outlook for consumers is grim.

According to Neil Roets, CEO of debt management company Debt Rescue, the pending decrease could be of a limited nature because of the hammering the rand has taken.

The currency dropped past the key mark of R14 to the dollar this week before recovering to trade around R13. Still, the rand is now at a 14-year low.

Despite the decline in value of the local currency, the Automobile Association is predicting that, assuming current trends persist, motorists can expects a petrol price decrease of between 55 and 64 cents in September, while diesel could drop by between 53 and 57 cents.

The association based its prediction on the Central Energy Fund’s mid-month data. Although the rand has continued to slip, the AA says the oil price – now at levels around $40 – has also continued to decline.

It said, last week, that had the rand not depreciated, SA would have been looking at a decrease of up to 83 cents a litre.

The fund’s latest figures show that SA is over recovering R1.19 on 95 octane fuel, and R1.24 on 93 octane. The over recovery for diesel is lower, at 64c.

Currently, a litre of 95 octane will cost R13.26 in Gauteng, while 93 is priced at R13.01. Diesel is priced from R10.94.

The AA has expressed confidence that fuel prices will drop at the end of August, but warned if oil prices flatten out, motorists will be at the whim of the rand in coming months.

Independent economist Dawie Roodt adds “it is highly unlikely that we will see a further fuel price decrease next month if the Rand remains at current levels”.

He adds: “The outlook for consumers in South Africa is grim because of several factors including the massive slowdown in the manufacturing sector which is now officially in recession as well as the threat of major strike action in the gold and platinum sector.”

He predicted that the economy would grow at less than the 1.2% being predicted at the moment.

“The best case scenario would be a growth rate of 1% while the worst scenario would be a full-blown recession.” Roodt said.

Roets notes, while he welcomes a decrease in the price of fuel, consumers should be mindful that other economic indicators remained largely negative and should understand that this was not a windfall that should encourage going on a spending spree.

“It is belt tightening time for the storm that might hit us later this year, as economic growth is going to be way lower than predicted by the government.”

Roets adds the current drought, being experienced by farmers in large parts of the country, will push up the price of food, which would have the greatest impact on the poorest of the poor who spent a greater part of their income on food than more affluent consumers.

“Some major issues affecting deeply indebted consumers remain, such as the fact that consumers collectively now owe around R1.6 trillion rand and the fact that more than half of all borrowers are now three months or more in arears with the payment of their bills.

“The total debt that consumers stacked up during the past several years when unsecured credit was easy to obtain remains a major burden for many. This would be a good time to repay as much of this debt as possible rather than going on a spending spree.”

Roets adds, “currently about 75% of the nett income of consumers has to be paid over to creditors which leaves very little disposable income for families to live on”.

Roodt concurs, saying major concerns were South Africa’s mounting debt and the global contraction fuelled by the slowdown in the Chinese economy.

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