Low economic growth keeps consumers cautious

EVEN as economic growth picked up in the second quarter - to 0.8% versus 0.1% in the first three months of the year - economists warn that the environment for the consumer remains subdued.

- NICOLA MAWSON

Against a backdrop of low economic growth, with full-year estimates hovering at around the 1% mark, South Africa's unemployment rate is officially 33%, inflation is at 3.5% and expected to rise to around 4% by year-end, and interest rates are still relatively high at 10.5% compared with 7% in the middle of 2020 when they were cut to stimulate growth.

Economists are divided on the outlook for consumers, with Old Mutual chief economist Johann Els taking a more positive stance.

He says low inflation and lower interest rates are supporting real household income and borrowing affordability.

"The economy is still expanding, albeit at a subdued pace, and several local and global factors should provide a measure of resilience," Els tells Personal Finance.

Yet, the Altron FinTech Household Resilience Index for the first quarter, released last week, showed that the real prime rate - prime minus inflation - is still 118% higher than in early 2020 and 177% higher than in 2014, underscoring that the cost of borrowing remains elevated.

Anchor economist Casey Sprake says the stronger-than-expected rebound brought some relief after a sluggish start to the year but adds it did not alter the picture of an economy still struggling to build momentum.

The gross domestic product data, released by Statistics South Africa on Tuesday, showed household spending picked up in the second quarter. Els says this points to consumers responding to an improved purchasing power environment.

Consumers have benefitted from a low inflationary environment and monetary easing, with a further interest rate cut announced in July, notes Lara Hodes, Investec economist, when commenting on consumers' purchasing power.