South African households’ finances remained under pressure in the first quarter of 2023 due to slower growth in disposable income, resulting in moderated growth in real final consumption expenditure.
This was revealed in the Quarterly Bulletin released by the South African Reserve Bank (SARB) yesterday.
The SARB said that real spending on both services and durable goods decreased slightly during the quarter, with the latter largely reflecting reduced purchases of personal transport equipment.
According to the quarterly bulletin, personal disposable income grew by a modest 0.2% quarter-on-quarter, down from 0.6% in the fourth quarter of 2022, due to a seasonal rise in employment.
However, the purchasing power of personal disposable income was hurt by elevated inflation, with consumer prices surprising to the upside in February and March.
The higher inflation print, and other upside factors, persuaded the SARB to continue raising interest rates aggressively while consumer confidence was weighed down by worsening electricity outages.
Consequently, households were more cautious of spending and growth in consumer spending slowed to 0.4% in the first quarter from 0.7% in the fourth quarter.
Given the squeeze on disposable income, households were forced to supplement spending with credit and the growth in consumer credit averaged 7.6% year-on-year during the first quarter, resulting in increased debt and higher debt servicing costs.
The SARB said household consumption expenditure increased, albeit at a slower pace.
Growth in real expenditure by households on semi-durable goods accelerated during the first quarter as real purchases of household textiles increased at a faster pace while those of motorcar tyres, parts and accessories as well as of miscellaneous goods reverted to an increase.
“Real spending on clothing and footwear increased at a slower pace. Despite the strong increase in the first quarter of 2023, the post-lockdown recovery in semi-durable goods consumption has thus far lagged that in the other durability components,” it said.
“Real spending on non-durable goods increased in the first quarter of 2023 after decreasing in the previous quarter, largely due to increased purchases of food, beverages and tobacco.”
Encouragingly, households’ net wealth increased during the fourth quarter as the value of total assets outweighed that of total liabilities.
According to the SARB, the value of assets was lifted mainly by higher share prices and housing stocks.
However, household debt to nominal disposable income increased to 62.1% from 61.1% previously as the heightened interest rate environment continued to weigh heavily on already constrained consumers.
Nedbank economist Johannes Khosa said household finances would likely remain under pressure in the short term though falling inflation will help to ease some stress on disposable income during the second half of the year.
However, Khosa said the benefit from lower inflation would partly be contained by higher interest rates and administered prices.
“A significant improvement in household finance will be achieved with higher employment growth,” Khosa said.
“This is unlikely to be experienced in the short term, given that slow policy reforms and persistent power shortages, among other structural issues, are weighing on the private sector’s appetite to increase capacity and fast track employment.”
With the number of unemployed South Africans increasing at a faster pace than the number of those employed, the country is still struggling from low levels of investment due to heightened levels of power cuts.
According to the SARB, real gross fixed capital formation increased further in the first quarter of 2023, mainly due to faster growth in capital spending by the general government.
Capital investment by public corporations also increased at a slightly faster pace, while growth in fixed investment by private business enterprises moderated notably. Although higher than a year earlier, the level of real gross fixed investment in the first quarter of 2023 remained well below the pre-pandemic average level of 2019.
Investec economist Lara Hodes said real gross fixed capital investment by the private sector was still 9.1% lower than in 2019.
“A notable pick-up in business confidence is required to boost investment. Instead, business confidence slumped further into contractionary territory in the second quarter of 2023,” Hodes said.
“Security of electricity supply, political and policy certainty and an improvement in the ease of doing business are imperative in this regard.”
BUSINESS REPORT