Cape Town – Consumers are fighting a losing battle against the rising cost of living amid a barrage of bleak economic indicators.
South Africa is in a technical recession, its unemployment rate is on a 14-year high, it has suffered junk status gradings by two ratings agencies and on top of that, it faces potential interest rate and electricity price hikes.
Statistics South Africa (Stats SA) revealed on Tuesday that the country is in a technical recession for the second time in eight years as gross domestic product contracted 0.7% for the first quarter of 2017.
This followed the disclosure by Stats SA on Friday that unemployment in its broad definition increased in the first quarter of 2017 to 36.4% from 35.6% in last quarter of 2016. This means, said Stats SA, that an estimated 9.3 million people in South Africa want to work, but can’t find a job.
Independent economist Dawie Roodt said it is unlikely that there will be an immediate backlash, because the markets have to an extent already factored in the bad news.
“The reality is that the South African economy has for a long time performed well below what is necessary to provide sufficient growth to provide employment for the rapidly growing workforce, and to provide jobs for the millions of unemployed people who want to work.”
Also last week, rating agencies Fitch and Standard and Poor’s (S&P), which stripped the country of its investment grade status, affirmed these ratings. A third rating agency, Moody’s, is set to make an announcement by July on its invesment status decision.
Debt Rescue CEO Neil Roets said should Moody’s downgrade the country, interest rates would go up on everything from unsecured loans to mortgage repayments.
He said the unemployment figures show that well over one third of the economically active population who want to work can’t find jobs.
“One consequence will be that they cannot pay their bills, which may very well drive them into the arms of moneylenders who charge extortionately high interest rates.”
Roets said that South Africa is already one of the most highly indebted countries in the world, with more than half of economically active consumers owing three months or more on their outstanding debt.
“We’ve become somewhat punch-drunk with the two junk downgrades that we’ve had from S&P and Fitch, with government bending over backwards to reassure us that it is not a big deal,” he said.
“[U]nless we can somehow blow some life into our very stagnant economy, consumers are in for a very rough ride,” Roets warned.
Another major problem waiting down the line is Eskom’s desire for a 19.9% electricity tariff hike from energy regulator Nersa.
“Electricity consumers who get their supply from municipalities will pay considerably more if Eskom is granted this increase, because councils place a premium on the Eskom rate to fund their activities.”
Roets said a downgrade would impact on all income groups, but the poorest of the poor would obviously be hit the hardest.
“It is also going to severely impact the emerging middle class – many of whom have only recently escaped from poverty – and plunge them back into debt because that was the only way they could maintain their lifestyle.
“As South Africans we have to accept the fact that times are hard and they are most likely going to get harder. Ratcheting up more debt is not the answer, because sooner or later it will catch up with you. It is better to tighten belts now and adjust your lifestyle to suit your income, however unpleasant that may be in the short term.”
He said wages and salaries are not keeping pace with the cost increase of virtually all goods and services.