The impact of SA’s recession on consumers

The SA economy hasn’t escaped rising global and market concerns. The initial euphoria created by President Cyril Ramaphosa’s appointment has been diluted somewhat, as the excitement failed to translate into much business activity.

The unexpected contraction in GDP in the first quarter of 2018, rising commodity prices, ongoing concerns over land reform, as well as sustained policy concerns over the new mining charter have all contributed to a weakening local economic outlook, says Richard Bray of Sanlam Investments.

These effects are reflected in the latest GDP figures, placing us in a technical recession. Consequently, Sanlam Investments expects lower future growth and a weaker rand, Richard adds.

It doesn’t bode well for SA’s cash-strapped consumers, who’ve already had to deal with a 1% VAT increase to 15% and record high fuel prices eating away at their disposable income. This has led to a decline in household spending – the first outright decline since the first quarter of 2016.

Consumers should be aware that, if the rand continues to depreciate, it could fuel higher inflation expectations and force the SA Reserve Bank to raise domestic interest rates, placing further pressure on consumers’ debt servicing costs and pushing the cost of living even higher.

During weak stock market performance and highly volatile periods such as these, investors tend to switch from riskier assets to cash, causing them to miss out on any market recovery.

Instead, investors need to tighten their belts and engage with their financial adviser, who’ll help them stick to their financial goals and steer clear of making emotional decisions that could have a devastating effect on their savings.

For this and other expert opinions, visit the media centre on Sanlam’s website.