In recent weeks, the general mood amongst South Africans from all walks of life has become palpably sombre, mainly as a result of the electricity crisis, signs of a return of the dreaded El Niño phenomenon (dryer weather), higher interest rates and a lowering of economic growth prospects.
It is important to maintain a balanced perspective and not to get carried away by headlines that suggest a doomsday scenario. A good example of such a balance is related to recent media reports alluding to the flight of capital from South Africa, based on net bond sales by foreigners.
These comments ignored the strong position of the country’s trade balance and their perpetrators were apparently blissfully ignorant of the imminent return of a risk-on sentiment amongst global fund managers, which contributed to a new all-time record for the JSE all-share index (Alsi) of more than 80,000 on Monday, 23 January.
Other positive trends include a hefty increase in total employment in the economy, which has now moved from 14.3 million a year ago to almost 15.8 million, which will undoubtedly swell the expected tax revenue overrun at SARS.
Ever since the end of the Covid lockdown restrictions, key sectors of the economy have been breaking records. The latest ones include the value of manufacturing sales, motor trade sales and wholesale trade sales.
The country’s export boom arguably represents the most impressive of a growing list of economic records that have been shattered over the past two years. At a level of R1.85 trillion, exports for January to November were already higher than the total for the whole of 2021 (which was also a new record).
Retail trade disappoints
Unfortunately, however, a raft of recently released data sets point to mounting pressure on the financial disposition of households. Although retail trade sales also reached a new record in November 2022 (R119 billion), this figure is less impressive in real terms, representing zero growth, compared to a year earlier.
Only two types of retailers managed to record positive real year-on-year growth, namely general dealers and textiles & clothing. Initial expectations of positive real retail trade growth in November, spurred by Black Friday sales, failed to materialise, ostensibly due to limited financial leeway in the face of higher interest rates and higher inflation.
November’s lacklustre retail trade performance is in line with the latest Altron FinTech Household Resilience Index (AFHRI), which declined by 0.2% in the third quarter (year-on-year). Although a fourth quarter recovery in the index value is more or less guaranteed as a result of the traditional spike in salaries during December of each year, the first quarter of 2023 is likely to witness a sharp drop in the financial resilience of households.
The AFHRI comprises 20 different indicators, all of which are related to sources of income or asset values. All of the indicators are expressed in real terms, with monetary values having been deflated by the consumer price index (CPI).
An interesting feature of the latest AFHRI is the sharp contrast between significant employment gains in both the public and private sectors of the economy, on the one hand, and labour remuneration, which declined by 3.2% in government and by 2.2% in the private sector. This is a clear sign that many people are prepared to trim their salary demands when accepting job offers – a trend that has obviously been influenced by the trauma of lay-offs during the Covid pandemic.
With further price increases for fuel and electricity looming large, the Reserve Bank should think twice before raising interest rates again. Inflation has peaked and any further attempts at lowering the consumer price index (CPI) via restrictive monetary policy will be in vain. It will only exacerbate the precarious financial disposition of many South African households.
Lower interest rates and tax relief for individuals constitute the obvious monetary and fiscal policy approach that will steer the country towards a more sustained growth path.