Johannesburg - The latest SA Reserve Bank quarterly bulletin shows that households are mired in the worst recession since 1991, Nedbank Group's economic unit said on Friday.
Their comments followed the release earlier of the SARB's June quarterly bulletin.
"Household consumption expenditure fell at a faster pace during the first quarter of 2009 as consumer confidence weakened further.
"Spending on durable, semi-durable and non-durable goods declined sharply, reflecting financial stress on consumers, due to falling employment and a contraction in disposable income," Nedbank said.
Despite the decrease in household spending, the level of household debt to disposable income increased slightly to 76.7% in the first quarter of the year from 76.3% in the final quarter of 2008, Nedbank noted.
Consumer spending was not expected to recover in the short term, as households remained under financial stress and low confidence as well as job insecurity persisted, Nedbank said.
"Falling disposable income should also constrain consumer spending.
"Lower interest rates may provide some relief ... however, households will probably opt to pay down debt rather than add to indebtedness."
Turning to the current account deficit - which came in at 7.0% of gross domestic product for the first quarter of 2009 - Nedbank said the figure would narrow during 2009.
"The current account is expected to narrow during 2009, but will still remain large at around 6% of GDP."
Nedbank added that exports would stay under pressure as the global slowdown persisted.
"The outlook for South Africa's major trading partners remains extremely uncertain and this poses a downwards risk to exports, both in volume and value terms," Nedbank emphasised.
Weak domestic demand might help to contain imports, Nedbank said.
However, the contraction in imports might not be sharp as expected, due to capital imports for public sector infrastructure spending, Nedbank warned.
The SA Reserve Bank's interest rate decision next week would probably be influenced by the extent to which it had bought into the "green shoots" theory of recovery.
"If the Monetary Policy Committee believes that a meaningful recovery abroad is imminent, they might believe that they have done enough to stimulate the domestic economy and may opt to keep rates on hold," Nedbank said.
"However, our view is that the committee will remain cautious about growth prospects and opt to cut rates by a further 50 basis points next week, to be followed by a further 50 basis points in the third quarter," Nedbank said.
- Sapa