SA’s household finances are recovering quite rapidly from the damage done by the Covid crisis — but the latest economic data highlights just how unequal this is, with low-income earners hit much harder than better-off households.
And though economists are still quite bullish about prospects for this year's economic growth, the sharp surge in Covid
cases and the latest level 4 restrictions could put a damper on growth and confidence levels, especially if the vaccine rollout doesn’t speed up sooner rather than later.
The latest Reserve Bank quarterly bulletin shows household balance sheets are being repaired, with the household debt ratio improving slightly in the first quarter of this year. With disposable income during the quarter increasing faster than debt levels, the debt-to-income ratio improved slightly to 75.3% and debt servicing costs remained low amid stable and low interest rates.
The national saving rate also increased and is still at much higher levels than before the pandemic, while those households with savings and assets have seen their net wealth increase on the JSE's gains.
Also this week, Reserve Bank figures on private sector credit extension showed consumers increasing their borrowing again to finance new houses and cars, with household credit growth lifting to 5.6% in June from 4.7% in May, and asset-backed credit — such as mortgages and vehicle finance — growing faster than unsecured credit. And new-vehicle sales figures for June show sales up 20% compared to the lockdown levels of a year ago, when sales plummeted.
Against this, however, consumer confidence data released this week shows confidence plummeted in the sector after recovering in the first quarter of this year, with the FNB/BER consumer confidence index (CCI) sliding to -12 compared to a long-term average of +2. But it was largely low-income consumers whose confidence crashed as support in the form of the Covid-Ters (Temporary Employee/Employer Relief Scheme) and Covid special distress grants came to an end, and the prospect of regaining jobs lost last year remained weak.
“A breakdown of the CCI per household income group shows an alarming turnabout in consumer sentiment among low-income households, with the CCI for the least affluent consumer group crashing from a neutral level in the first quarter to deep into negative territory during the second quarter,” said FNB chief economist Mamello Matikinca-Ngwenya.
The trend may echo the latest formal sector jobs figures from Stats SA, which unexpectedly showed 9,000 job losses in the formal, non-farm sector during the first quarter, in contrast with the increases of the previous two quarters.
It’s hard to tease out the story ... There is a split between income groups.
— Hugo Pienaar, BER economist
Total formal sector employment is still lower than pre-pandemic levels by more than 5%, with more than 550,000 jobs lost. But the figures also show a marked shift to part-time work, which has increased, from full-time jobs, which have declined, while sectors such as trade and construction, which employ large numbers of unskilled workers, have been among the hardest hit.
Though employment gains are lagging economic growth, this week’s data showed confidence levels and job prospects in some of the sectors most vulnerable to the pandemic improving slightly — before the latest round of new lockdown restrictions.
The BER’s “other services” survey — which includes hotels and restaurants as well as others such as business services — showed confidence rising to 34 — though this still implies that two-thirds of respondents are not happy with business conditions.
There was encouraging news, though, on the trade surplus, which came in much better than economists had expected on healthy export growth.
Economists are mulling what the mixed signals from the data on consumers indicate.
“It’s hard to tease out what the story is,” said BER economist Hugo Pienaar.
“It’s interesting that consumer confidence is down again in the second quarter. In the second half of last year and first quarter of this year the recovery was progressing faster than expected, and we saw that in the first-quarter GDP figures, when consumption was better than expected.
“But there is a split between income groups. We know some government support has fallen away and low-income earners have taken a knock. We know too that employment recovery is lagging growth recovery and it is getting tougher for low-skilled households, while, in contrast, higher-income consumers are more confident. You might take a knock from the third wave but to the extent that you’ve kept your job and still have a decent income, you’re better off.”
The concern is about what may come in the second half of the year. “The third quarter will be tough. We will struggle not just with government-imposed restrictions but consumers’ self-restriction as the number of cases peaks,” Pienaar said. He still expects the economy to grow by 4%-plus this year given a better-than-expected first half.
PwC economist Lullu Krugel is a lot more bearish, however. The standout from the latest figures is that low-income households have gone significantly backwards, she said. “It is a very inequitable recovery.”
She sees consumer spending growth starting to peter out. And while level 4 this time is not as intense as last year’s level 4, PwC has now reduced its base-case economic growth forecast for this year from 3.7% to 2.7%, with a low-case scenario of 0.6% and a high of 4.8%. Load-shedding hours this year have already exceeded those at the same time last year.
However, Krugel said: “If Eskom plays ball and if we can get the vaccines out speedily our upside scenario would be closer to 5%.”
A study by PwC, Discovery Health’s health policy unit and Business for SA published last week estimates that in an upside scenario, in which a fast vaccine rollout gives SA population immunity by December and the third wave is mild and short-lived, the economy could grow by 5.2% this year and 3% each year from 2022 to 2025, returning to pre-Covid levels in two years.
However, with a severe third wave, population immunity delayed beyond mid-2022, load-shedding at last year’s levels, and slow economic reforms, the economy would take seven years to get back to pre-Covid levels, with growth of less than 1% this year.
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