South African Household Spending Contracts First Time Since 2016

JOHANNESBURG (Capital Markets in Africa) – Spending by South African households contracted the first time since 2016 as an increase in value-added tax and higher fuel prices ate into disposable income.

Consumption expenditure by households shrank an annualized 1.3 percent in the second quarter from the previous three months, the first contraction since the first three months of 2016, the Pretoria-based South African Reserve Bank said in its quarterly bulletin, citing figures from the statistics agency.

• Spending on durables shrank 11 percent.
• Expenditure on semi-durables such as clothing and furnishings contracted 5.1 percent.
• Spending on non-durables dropped 2.4 percent.

The economy hasn’t expanded at more than 2 percent annually since 2013 and fell into the first recession in almost a decade in the second quarter. More than one in four people in the workforce are unemployed and policy uncertainty has made companies reticent to invest in industries such as mining. In September, the country entered a 58th month of a downward phase of the business cycle, the longest streak since 1945, the bank said.

“The decline in households’ real disposable income, largely due to tax increases and fuel-price hikes in the second quarter of 2018, adversely affected real household consumption expenditure,” the central bank said.

The government raised the value-added tax rate by one percentage point to 15 percent — the first increase since 1993 — this year to try to help fill a revenue shortfall.

Headwinds to household spending, which make up for almost 60 percent of gross domestic product, will hinder a robust recovery in economic growth, Finance Minister Nhlanhla Nene said earlier this month.

Source: Bloomberg Business News