Outlook bleak for already battered consumers | Fin24
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Outlook bleak for already battered consumers

Nov 13 2015 14:13
Eugenie du Preez

Cape Town - Improving trends in consumer credit health which have been becoming evident have slowed and are possibly starting to reverse, according to an index.

The TransUnion South African Consumer Credit Index (CCI) for the third quarter of the year has found that more consumers are resorting to borrowing money to pay off debt or for general expenses.

TransUnion's Salem Dyafta said on Friday that the index also showed a marginal increase in new account defaults (accounts three months in arrears).

“This is a worrying trend as account defaults fell by 8.3% in the first quarter of this year. Now the rate of decline has slowed to just 1.6% year-on-year. This indicates that the pressure on consumers’ credit health is starting to increase,” she said.

Although it is good news that the overall index remained above the break-even 50 point mark (anything above 50 means consumer credit health is relatively positive), this figure has also been dropping from a revised 53.6 in the second quarter to 51.2 in the third quarter – the largest single quarter drop since the first quarter of 2012.

Referring to the slowing of positive signs of improving credit health, Dyafta said: “What is of particular concern is that this is occurring in a period of relatively low inflation when the trend should be upwards.”

Should things not take a turn for the better, the weak economic environment is raising concerns about a possible recession.

“While no single indicator of consumer credit health shows a significant decline, consumers have had to deal with a prolonged period of difficulty since 2008 and low levels of liquid household savings. This makes consumers extremely vulnerable as can be seen in the greater number of defaults in areas such as automotive and banking loans, which are typically the first areas to indicate a worsening situation," said Dyafta.

This comes as Grain SA has issued a bleak warning that consumers face a double whammy on food prices from a combination of the countrywide drought and continued rand weakness.

Grain SA CEO Jannie de Villiers told Fin24 that the drought could see the country become a net importer of maize for the first time in seven years. This could mean a significant hike in maize and ultimately food prices.

De Villiers mentioned price increases for eggs (10%), chicken (6%), and beef (4% to 5%) and said South Africans could experience much higher prices if it there is no rain in the next three to four months.

READ: Drought, rand double whammy for consumers

An expected increase in wheat prices could also impact the price of bread.

Furthermore, as a net importer of wheat South Africa is affected by the rand exchange rate. “The depreciation of the rand is the key issue,” said De Villiers. The currency has recently fallen to a record low of R14.3827/$.

transunion  |  sa economy  |  consumers


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