Consumer spending plays a fundamental role in the economy with household consumption expenditure being equivalent to over 60% of GDP.
According to the Institute of Race Relations (IRR) South African consumers are under increasing economic pressure which may further dampen the country’s economic outlook.
IRR analyst Gerbrandt van Heerden adds that consumer confidence has dropped significantly and with the net balance for the first quarter standing at -4, spending power will decrease.
"Consumption plays an important role in our economy, 60% of our GDP is fuelled by household consumption expenditure, so when you have consumers under pressure their spending power will decrease and that will result in a decline of money put into the economy," he says.
The IRR further adds there is still deep racial consumption inequalities despite the black middle class having risen to the approximate size of the white middle class. In 2014, over 60% of white households spent more than R10 000 per month, compared to only 8% of black African households. Van Heerden says with interest rates likely to rise in the medium term in response to foreign rate hikes, the South African consumer will come under growing economic pressure and black consumers will be hit the hardest. – THANDI XABA
