THE PACE of spending in SA’s economy decelerated to 2009 levels last year, and the outlook for this year is no better.
Households face rising interest rates and inflation; the government has to cut back so as to close the budget deficit; and private companies — wary of a slowdown in the economy and concerned about policy uncertainty — are curbing investment.
Growth in gross domestic expenditure slowed from 0.6% in 2014 to 0.3% last year — the lowest since the recession.
Households supported most of the spending last year and, given their precarious situation, they will not be able to prop up the economy to the same extent this year. Household finances would remain tight, as the cost of servicing debt would rise along with interest-rate hikes and rising inflation would erode disposable incomes, Nedbank economists said.
High unemployment, slower wage growth and high debt levels will also weigh on consumer spending.
Although the ratio of household debt to disposable income fell from 78% in the third quarter to 77.8% in the fourth quarter, debt service costs rose slightly because of the 25-basis points rate hike in November.
The 50-basis points increase in January means even higher debt service costs. Spending by private companies will be affected by rising input costs, particularly those for labour and electricity. The weak rand raises the cost of goods that need to be imported.
Though there was a 1.7% increase in spending by private enterprises in the fourth quarter after a 0.6% contraction in the third, the rise is unlikely to be sustained.
The increase was driven by independent power producers’ investments while other sectors concentrated on spending on maintenance, South African Reserve Bank officials said.
There were contractions in most other sectors, particularly agriculture as spending on machinery was curbed by the persistent drought.
The Bank admitted that overall investment had remained lacklustre given low business confidence, poor demand and ample capacity in most parts of the economy. Gross fixed capital formation is made up of spending on infrastructure by government, its parastatals, and private business enterprises.
On a quarterly basis, growth in spending accelerated from 1.4% in the third quarter to a three-year high of 4.3% in the fourth quarter, although economists warned this would not be sustained.
Higher expenditure in the quarter was supported by a faster pace in most sectors.
Spending by public enterprises was underpinned by increased construction works and transport equipment.
Transnet and the Passenger Rail Agency of SA raised their capital investments by acquiring locomotives, which also supported public enterprises spending.