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Cape Town – With South Africa recording the slowest year-on-year (y/y) growth since the final quarter of 2009, the wage bill growth may have to be trimmed.
That is the warning from First National Bank (FNB) Home Loans economist John Loos on Tuesday, after Statistics SA announced a y/y gross domestic growth (GDP) of 1% in the third quarter of 2015.
That is below the lower revised target set by Finance Minister Nhlanhla Nene in his October mini budget of 1.5% from 2% in February.
The impact on the residential property and mortgage markets will be negative and growth in these sectors will slow down in the near term, he said.
Loos said there has been a steady rise in the total wage bill/GDP ratio, from a low of 46.34% back in the third quarter of 2006 to 52.23% by the third quarter of 2015.
He has seen a slowing in the domestic wage bill growth rate accompanying the multi-year GDP growth slowdown, which contains the purchasing power growth in the housing market.
“From a peak of 12.8% y/y growth in the compensation of employees back in the second quarter of 2010, this rate has slowed to 7.9% by the third quarter of 2015,” he said.
“It has arguably been kept at a still significant level by wage settlements that have been considerably above inflation, and by labour thus being able to increase its share of the take home GDP pie.
“As this wage bill/GDP ratio rises, crowding out a portion of the economy’s gross operating surplus, so the pressure on the economy to shed jobs, in order to contain this wage bill, rises,” he said.
Real growth in disposable income will continue to broadly slow, as wage bill growth slows further in the near term, said Loos.
Increased job losses and a lack of new job creation will likely dampen consumer confidence, he said.
“The response should be for the household sector to begin to spend more conservatively relative to income, and thus raise its savings rate, as it started to do briefly when the environment became tough around 2008/9.
“An increased savings rate, although long overdue, is nevertheless a short term negative for those sectors depending on household sector spending growth.”
