The release of the South African Reserve Bank’s quarterly bulletin this week served as another reminder of the strain households find themselves under as the country battles a shrinking economy.
Household real final consumption expenditure shrank by 1.3% in the second quarter of 2018, according to the Reserve Bank, the first decrease in more than two years.
Spending on durable, semi-durable and nondurable goods declined.
This was driven by falling household disposable incomes, “largely due to tax increases and fuel price hikes in the second quarter of 2018”, the Reserve Bank said.
As households’ disposable incomes shrink, debt has also ticked up, according to the Reserve Bank.
Total household debt picked up slightly in the second quarter of 2018, as mortgage advances, instalment sale credit and the use of credit cards increased over the period.
According to the Reserve Bank, the ratio of household debt to disposable income edged higher, from 70.9% in the first quarter of 2018 to 71.3% in the second quarter. But the cost of servicing that debt remained unchanged at 9.0% over the period, the bank noted.
Household spending was also suppressed “by diminishing wealth effects” in the first eight months of the year as the performance of the stock exchange trended lower, according to the Reserve Bank. This was a result of heightened volatility driven by increased risk aversion towards emerging economies, coupled with weak domestic economic activity and policy uncertainty, as well as uncertainty about land expropriation without compensation.
Investment into South African bonds and equities by foreigners took a sharp hit in the second quarter of the year.
Inward portfolio investment shrank significantly, from R89.4-billion in the first quarter of 2018 to R16.6-billion in the second quarter, according to the Reserve Bank, as nonresidents’ acquisition of both domestic debt and equity securities declined.
Purchases of domestic equities decreased from R42.5-billion in the first quarter of 2018 to R12.8-billion in the second quarter, and debt securities decreased even more, from R46.9-billion to only R3.8-billion, the Reserve Bank said.
Although South Africa’s political and economic dynamics contributed to portfolio outflows, these were largely driven by emerging market risk aversion, said Nedbank economist Johannes Khosa.
“We also saw a decline in employment creation, so the unemployment rate remains high,” said Khosa. “That is also breaking the personal finances of the country.”
The release on Wednesday of the quarterly employment statistics (QES) survey by Statistics South Africa reinforce these concerns. The QES measures those jobs in the private non-agricultural, formal sector, including those in factories, firms, offices and stores, as well as national, provincial and local government entities.
According to StatsSA, the formal sector shed 69 000 jobs in the second quarter of the year, a decline of 0.7% from the previous one.
This was largely a result of decreases in the community services sector, which lost 67 000 jobs, manufacturing, which shed 13 000 jobs, mining and quarrying, which lost 200 jobs, and transport, which also shed 2 000 jobs.
Although employment in the formal sector has grown when measured on a year-on-year basis, it was at a rate of 0.1%, or 13 000 new jobs.