As South Africa enters its first recession in eight years- what does it mean to the consumer?

7 June 2017

We have all heard the news: South Africa’s economy is shrinking and we have entered into a recession for the first time since 2009. We are all alarmed and perhaps frightened by this news, bought about by weak manufacturing and trade sectors, high unemployment rates, stagnant wages, political uncertainty and credit downgrades. We have also learned that this will inevitably add immense pressure to the current government.

But what does this news mean to consumers in South Africa, and how will this impact us on a day-to-day basis? Firstly, how do we define a recession? A recession is a prolonged period of time where a nation’s economy slows down. This slow-down is characterized by a number of different trends which include: a decrease in household consumption a decrease in factory production, growing unemployment, a slump in personal income and an unstable stock market.

When a nation’s economy enters a recession, a number of factors occur: due to the economic uncertainty, local and foreign businesses are reluctant to invest, unemployment rises as the demand for products and services decreases and those without jobs spend less. People who remain employed are also reluctant to spend as they remain cautious about job security and, due to this lessened need for products and services, the economy shrinks instead of expands.

A recession is not good news for South Africa and, amidst the recent downgrades and political instability, South African consumers are understandably feeling anxious and should prepare themselves for a bumpy ride ahead. James O’Haughey, Chief Financial Officer of DebtBusters urges consumers to face up to their debt in these difficult times, and to seek help before it is too late.

On a more positive note, Citadel has pointed out a silver lining for consumers in the recession. It said that the weak growth numbers along with declining inflation also suggest that the South African Reserve Bank should be in no rush to hike interest rates anymore, meaning that the price for lending money will not go up. In fact, it could possibly go down. But this does not mean that you should be taking out more credit/loans due to the unreliable times ahead.

Now is a good time to obtain a credit report to see where you stand in terms of your credit status. Remember that even though interest rates may decrease in the next few months, taking out a new loan to cover another is only a short- term fix which will land you in even further financial trouble in the future. Consider a long- term solution to your financial distress such as debt counselling or debt consolidation as these options will both save you money and put you on the direct path to becoming debt free.