Monday October 10, 2005 07:00 - (SA)
The warning from economists is clear: the party is over for now and consumers should curb spending sprees going into the festive season and cut debt to manageable levels.
South Africa's largest business organisation, Sacob, was the first to sound the alarm bells, saying the good times were over and South Africa's six-year economic boom was set to falter.
While consumers have been rolling in more money and enjoying the lowest interest rates in 24 years, economic data released this week indicates that the country's good fortunes are about to change.
Sacob's business confidence index - a leading indicator of economic activity - is down and consumer demand - a key indicator of South Africa's economic performance - is tapering off.
Growth in retail sales slowed to its lowest level in almost two years in July this year.
Growth in house prices has almost halved in a year and new car sales are coming down.
Inflation is climbing as petrol prices reached new highs of R6,03
a litre at the pumps, and economists warn that rising inflation will erode the net worth of assets, whether it is income, house or a car.
The Reserve Bank's monetary policy committee meets this Wednesday and Thursday to decide on interest rates.
But experts are predicting that consumers will see no further relief this year. In fact, 14 economists polled this week are forecasting that consumers could be in for an interest rate shock of a 1% hike as early as next year.
This would be a heavy blow for consumers who have already taken on more debt than they can service or those who have left very little room to accommodate a rate hike.
"Going to the festive season, people should spend wisely and limit the consumption of groceries and clothing and take debt only in real assets, such as a house or car," advises Eskom's Mandla Maleka.
"We have seen the last multiplying impact of the cut in interest rates. Consumers should stay away from further debt acquisition.
"They must get out from the borrowing bench and start entering in a saving environment."
He says economic data points to warning signs in the short-term performance of the economy.
"The momentum of the economy is going to be much slower than what it was before because of rising inflation and a potential hike in interest rates," he says.
The Industrial Development Corporation's Lumkile Mondli agrees that it is not a "rosy picture".
"What is happening is beyond our control. The high oil prices have had an enormous impact on consumers who had a lot of disposable income, which at the moment is being squeezed by petrol transport costs. Secondly, a lot of them have been relying on debt for consumption, which is bad news in the short term," he says.
But he believes that in the long term the economy will be healthy. "The boom is not yet over. In the long term, oil prices will subside back to $40 a barrel and bring relief to consumers and government's public works programme and infrastructural investments will create employment opportunities," he says.
Daily Dispatch
Publisher: Daily Dispatch
Source: Daily Dispatch
