Shocking statistics have shown that South African consumers are being crushed by a mountain of debt. Houses and cars are repossessed every day, civil judgments are rising and household spending has dropped to its lowest level in 10 years.
"The crisis is really upon us. Many people are experiencing serious financial problems and are losing their homes and cars almost daily," said Thami Bolani, the chairman of the National Consumer Forum. "The growth in the number of home repossessions is worrying; the situation is dire for many South Africans."
Bolani painted a gloomy scenario for consumers at the day-long 2009 Consumer Rights Conference on Friday, when the global economic downturn, its impact on South African consumers and high food prices came under the spotlight.
He said financial institutions were not helping the situation by tightening lending criteria. Home loan data from the Reserve Bank showed that the year-on-year growth in the value of mortgage advances by monetary institutions (the total net outstanding balance on mortgage loans at these institutions) dropped to 10.5 percent in April, from 11.3 percent in March. This was the lowest year-on-year growth in outstanding mortgage balances since February 2003, when it was 10.4 percent.
There has been no respite for the motor industry either, according to Nico Vermeulen, the director of the National Association of Automobile Manufacturers. He said consumers were reluctant to spend on new cars, and financial institutions were rejecting 65 percent of applications for finance for new vehicles. Total vehicle sales for May were 25 819, compared to 39 516 in May last year.
On Thursday, the Reserve Bank said household spending fell by 4.9 percent in the first quarter of this year, after a 2.7 percent decline in the fourth quarter of last year.
Nedbank's economic unit said the statistics from the Reserve Bank show that households are battling, and this could force the central bank to drop interest rate by at least 50 basis points soon.
"Lower interest rates may provide some relief however, households will probably opt to pay down debt rather than add to indebtedness," the bank said.
Statistics South Africa said on Thursday that civil summonses issued for debt for the three months ended April increased by 15.6 percent compared with the three months ended April last year.
Economics firm Econometrix said that in the months ahead increases in remuneration and the downward trend in interest rates should start to help many consumers.“However, the increasingly poor economic trends in various sectors of the economy are going to strongly increase stress levels of persons in those sectors. The conflicting economic trends suggest that the absolute levels of debt stress will remain at high levels.”
The news won't get any better soon: the Department of Minerals and Energy is expected to announce another fuel price increase on Friday, to become effective next month.
Lillibeth Moolman, the chairwoman of the South African National Consumer Union, said for consumers it was just about survival. "People are finding it difficult and for now there is no ray of hope, with food price inflation still high. And another petrol price hike will only add to the woes," she said.
Cosatu spokesperson Patrick Craven said it would push for another interest rate cut. "Lowering it could help families and smaller businesses survive, and stimulate job creation. More job losses are on the way unless something drastic happens."
Liza van Wyk, CEO of training company AstroTech, said many companies were already in the third round of retrenchments in a bid to stay afloat.
"We are seeing a disturbing rise in retrenchments."