SOUTH Africans should avoid long-term debt at all costs this
year as the local economy will be under pressure from continuing volatility
driven by the eurozone debt crisis, economists have warned.
Tony Twine, a senior economist at Econometrix, told Fin24
that consumers should avoid getting into debt that would take more than a year
"If they do take on debt, they should make sure that
they will be able to repay their debt when the interest rates rise," Twine
He also urged South Africans to avoid overspending, shop
carefully and always consider "buying down".
"By this I mean they should not buy the nicest things
in the range, but should be practical and buy things at lower prices," Twine
said, urging those who can save money to make it a priority.
Twine made these comments at a time when many observers
believe the global economic slowdown holds the key to the local economic
outlook this year.
This will also arguably be the key driver of the rand's
trajectory, which is a critical determinant of the interest rate and inflation
Tendani Mantshimuli, a consumer economist at SA's
fourth-biggest life insurer Liberty, said the strength of the rand would be a
further factor consumers should watch out for in 2012.
A significant deterioration in the rand will have a negative
influence on inflation developments, he said.
"International food prices and higher petrol prices are
partly behind inflation being over the upper target band," Mantshimuli
"While oil prices are high they haven't been increasing
steeply, so most of the increases we've seen in petrol prices were related to
the weak rand. The weakness of the rand recently has been related to risk
aversion and investors selling off emerging market assets as a result of
eurozone problems, not a result of SA economic fundamentals."
Mantshimuli said "administered" prices would still
continue to pose an upward risk to inflation.
He added that Eskom this year would be adding another
tranche of the higher tariffs it requested from the energy regulator to finance
These are mainly cost-push pressures, in other words they
were created by the supplier rather than consumer demand.
Twine said the state of the economy in the first half is
going to be almost a repeat of what happened last year. "It will be
characterised by high volatility," Twine said, warning that this year's
economic growth would be slower than that of 2011.
"We think South Africa will only experience 2.7% growth
this year due to volatility caused by the lack of confidence in capital markets
around the world."
Merina Willemse, an economist at the Pretoria-based
Efficient Group, warned consumers to avoid debt even though interest rates
"As the high interest rate cycle is approaching, they
should pay off debt taken before this," Willemse said."Though higher
spending drives our economy, I would urge South Africans to spend within