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South African consumers face more pain from potential global trade wars and fuel increases.
South African consumers face more pain from potential global trade wars and fuel increases.

Trade wars turn up the heat on local consumers

ECONOMIC NEWS

By Sunita Menon - Jul 11th, 09:24

South African consumers face more pain from potential global trade wars and fuel increases, global payments company Mastercard said in a statement. 

The retail sector has been flailing in recent months, with consumers feeling the strain of VAT increases and three consecutive months of fuel price increases.

Consumer spending accounts for more than 60% of GDP. The economy is still reeling from a weak first quarter in which the sector contributed significantly to the decline.

"It’s brutal. The ongoing fuel price hikes is the number one risk to global growth, but the global trade wars are SA’s biggest macroeconomic concern. Consumers need to watch this closely," said Mastercard senior vice-president of market insights, Sarah Quinlan.

SA imports most of its petroleum products from abroad at prevailing global prices and exchange rates.

"If consumers spend more on transport, they will have less to spend on any discretionary items," said Old Mutual Multi-Managers chief investment strategist Dave Mohr.

As tensions rise between major trading partners China and the US, with ripple effects globally, the cost of living is expected to go up significantly.

"We know that we have some challenges in global trade that have been introduced into the global economy. Unfortunately for the South African market, which is heavily export-dependent, this will take a serious knock," Quinlan said.

Added to this, while China was once more open to importing SA goods, the country is now focusing on its domestic market.

"China has made a conscious decision to domestically focus their economic growth, so SA really needs to focus on diversification and stop relying on imports," said Quinlan.

This was made clear by SA’s current account deficit, which widened in the first quarter as exports fell dramatically.

"The sharp fall in exports shows that SA truly has a structural problem," said Citibank economist Gina Schoeman.

Business confidence also plummeted to levels last seen nine months ago on the back of a weaker rand and slower retail sales. The risk of a global trade war had alerted certain industries in SA, who had indicated it would affect industry and employment negatively, according to the South African Chamber of Commerce and Industry’s business confidence index.
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