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Cape Town - Loss of employment could become the biggest concern in the household sector in 2016, John Loos, household and property sector strategist at FNB Home Loans, said on Tuesday.
Between 2010 to 2013, real household disposable income growth exceeded real gross domestic product (GDP) growth. However, Loos said that the next few years will likely be the opposite, with real disposable income 'under-performing' real economic growth.
"By this, I am implying that the consumer may go from being one of the relative 'strong points' in the economy in recent years to being one of the relative weak points in 2016," he said.
This will translate into a slower year of retail and residential property demand growth. However, he said the biggest concern will be how the rising pressure on employment and incomes will impact high social tensions in South Africa, raising the risk of turbulence and instability.
He pointed out that the household sector has to date been “cushioned” to an extent, with average wages outpacing general inflation. However, this has meant a national wage bill increasing its share of total GDP, shrinking the gross operating surplus of the economy for a number of years.
"Now, some years later, the lagged response looks set to be a more significant downsizing of the formal sector work force, the normal response to wage bill pressures in a stagnating economy," explained Loos.
"When the wage bill’s share of GDP rises, translating into a reduction in the gross operating surplus as a percentage of GDP in a stagnating economic growth environment, the sad but likely outcome in the absence of salary reductions is job shedding."
In his view, it seems realistic to expect that some of the pressure that South Africa’s commercial sector has arguably been feeling for a while, especially in manufacturing and mining, will be increasingly felt by the household sector, as moves to curb the strong wage bill growth are stepped up.
"Already, we have seen the SA Reserve Bank's Non-Agriculture Private Sector Formal Sector Employment Index decline by -5.9% from early-2013 to mid-2015, not good news at all, and further decline is expected, given our own FNB forecasts of real GDP growth slowing from around 1.5% in 2015 to 0.5% in 2016," said Loos.
"While there were some post-recession years of strong government sector employment growth, this has also tapered off, as government runs into mounting fiscal constraints itself, with tax revenue growth coming under pressure."
The household sector could be further impacted by gradually rising interest rates taking a little more off disposable income, the drought driven acceleration in food prices, accompanied by higher imported inflation due to a sharply weaker rand, the multi-year stagnation in economic performance and an anticipated personal tax increase in the 2016 national budget.
