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Higher consumer spend expected in second half
Higher consumer spend expected in second half

Higher consumer spend expected in second half

MARKETING NEWS - Apr 30th 2015, 10:12

While steep electricity and municipal tariff increases are set to weigh on household disposable incomes in the second half of the year, this will not be enough to dent expectations of improved consumer spending. 

Household spending accounts for two-thirds of SA’s gross domestic product, about R3.8-trillion last year, and a positive outlook would support economic growth.

Consumption, especially by households and the government, is the biggest driver of SA’s economic growth. This is in contrast to other emerging market economies such as China, where state infrastructure spending and foreign direct investment have helped propel growth.

Lower fuel prices, above-inflation wage hikes, and lower inflation are among the factors that will support spending in SA.

Although the state is looking to boost investment in particular infrastructure spend in a bid to drive growth, household spending remains crucial in an economy struggling to shake off a sluggish growth rate.

The public sector spent R1.02-trillion on infrastructure between the 2009-10 and 2013-14 fiscal years. About R800bn is expected to be spent over the next three years.

Consumer spending will also support the economy at a time when foreign direct investment has not been as strong as in the past. Inward foreign direct investment amounted to R62bn last year — down from R80.1bn in 2013 — partly reflecting policy uncertainty and a fragile global recovery.

Household spending is expected to improve this year, and thus manufacturers can be encouraged to produce slightly more goods than is the case at the moment.

Investec chief economist Annabel Bishop forecasts that household consumption expenditure growth could accelerate to 2.2% this year from 1.4% last year. The 1.4% was the lowest rate of increase in household spending since the 2009 recession.

FNB economists Alex Smith and Mamello Matikinca forecast household consumption expenditure at 2.3% this year. However, they say if Eskom’s application for even higher electricity tariff increases get the green light, this is likely to weigh on household spending growth.

Fuel prices have fallen sharply in the past few months, and dropped from R14.33c/l in August last year to R10.31c/l in February this year.

While the petrol price rose 96c/l last month and R1.62/l this month — which reversed some gains — estimates are for a decrease of about 10c/l next month. The fuel cuts were further supported by slowing inflation, which boosted buying power.

Inflation has gradually moderated from 5.9% year on year last October to 3.9% year on year in February.

Although inflation is likely to accelerate on slightly higher oil, fuel, and food prices, it is unlikely to breach the Reserve Bank’s 3%-6% target band this year, which should help keep rates unchanged a while longer.From DFM Publishers (Pty) Ltd 

Read more about: economy | consumer spend | china

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