Debt
04.03.2020

On Tuesday Stats SA released the latest 2019 Q4 Gross Domestic Product numbers showing that the South African economy shrank by 1.4%. This contraction followed a previous quarter contraction meaning that the economy was in a recession for the second half of 2019.

Fin24 reported that a technical recession occurs when there are two consecutive quarter GDP contractions. This is not great news for the country, who has a lot on it’s plate already. Seven out of 10 industries showed contacted growth, with the agriculture sector suffering the largest dip.

What Does This Mean For The Man On The Street?

Firstly, the general living standards of South Africans cannot improve unless there is economic growth. With already high unemployment numbers, a recession puts further pressure on the job market and on industries with large labour forces.

Most businesses struggle during tough times such as these. With lower revenues due to consumer strain, businesses need to find ways to cut costs. This often leads to retrenchments or even businesses closing down.

Shrinking economic growth means less spending by consumers. The ripple effect is that government is unable to collect enough revenue to cover its budget needs, forcing budget cuts similar to those mentioned by Tito Mbeweni last week.

Increasing Prices For Most Goods And Services

With a depreciating Rand and lower growth, the price of consumer goods and services are likely to rise. In particular, we will see food and transport prices increase reports IT News Africa. These are items which will affect every consumer’s bottom line.

Consumers will start looking for cheaper alternatives to curb spending. We will also notice a drop off in long term credit applications due to affordability issues.

Overall, consumer should be cautious of their spending habits and try enforce strict household budgeting. Try to refrain from taking out short-term, unsecured debts to cover budget shortfalls. This will only make the problem more difficult down the line.

{Source: Fin24;ITnewsafrica}

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