2022: The year of little confidence and mountains of debt for consumers

After looking forward to a year without restrictions, consumers were disappointed when geopolitical issues caused global economic conditions that also affected local prices of everything from fuel to food, forcing them to lose confidence in the economy and go deeper into debt.

Consumer confidence

Consumer confidence started 2022 on a low due to the war in Ukraine as well as the associated humanitarian crisis and its economic ramifications, declining by 4 index points during the first quarter from -9 to -13, the same depressing level recorded in the second quarter of 2021, according to the FNB/BER Consumer Confidence Index (CCI).

In the second quarter consumer confidence plunged to -25, the lowest in three decades after the -33 in the second quarter of 2020, when the sudden outbreak of the pandemic and implementation of level 5 lockdown decreased sentiment.

ALSO READ: Consumer confidence increases again, but no great outlook for 2023

Consumer confidence increase by only 5 points to-20 in the third quarter, but remained extremely depressed, signalling a substantial deceleration in real consumer spending growth compared to the robust rates recorded at the start of the year.

The fourth quarter saw a surprisingly strong rebound to -8 index points for the fourth quarter, bringing consumer confidence more or less in line with the same quarter in 2021. Although a reading of -8 still signifies depressed consumer sentiment, the scope of the rebound comes as a surprise given sustained high inflation, frequent load shedding, successive large interest rate hikes and the worsening global economic backdrop.

Consumer debt

There is little to suggest it will be a ‘happy new year’ on the financial front, not just due to the typical Janu-worry stress caused by the festive season splurge, but because South African consumers continue to face a perfect storm of economic conditions that threaten to overwhelm thousands of already over-indebted consumers, Neil Roets, CEO of Debt Rescue, says.

“Consumers head into the new year in a far worse position than they were a year ago and it is not going to get easier any time soon. Interest rates, fuel prices, seemingly ever-increasing electricity prices for a service we only enjoy about half of the time are growing at a far greater rate than the average salary.”

He points out that although inflation softened in November, inflation on transport skyrocketed by 15,3%, while food and non-alcoholic beverages increased by a staggering 12,5%. This is illustrated by the fact that the average price of a 2,5kg bag of maize meal was R34,08 in November. A year ago, it was R15,68, meaning that the price of this staple doubled.

ALSO READ: Consumers paying debts despite economic pressures

Consumers were looking forward to 2022 when the last of the Covid-19 restrictions were lifted, but it was soon followed by Russia invading Ukraine, sending the price of oil through the roof. With global supply chains under pressure, South Africa was hit by the Transnet strike, while load shedding became worse than ever.

However, South African consumers are paying their debts despite economic pressures, although they also opened more credit accounts to get there while lenders kept closer oversight by offering lower loan amounts and putting limits on revolving credit to mitigate risk of non-payment, according to the findings of the TransUnion Q3 2022 South Africa Industry Insights Report.

Consumers signed up for credit cards, non-bank personal loans, home loans and clothing accounts, with credit originations increasing by 14.5% year-over-year and applications for new credit by 13.1% in the second quarter.

ALSO READ: Most South Africans need about two thirds of salary to pay debts – report

Consumers borrowing more to find breathing space

Most income groups need about two-thirds of their take-home salary to pay their debts and with no meaningful increase in real income, the combination of rising interest rates and inflation is choking consumers who are borrowing more in an attempt to find breathing space, according to DebtBusters’ 2022 Debt Index for the third quarter.

Consumers are enquiring more about debt counselling (30%) compared to the same period a year ago and most are from consumers who were first-time buyers of assets, such as houses and cars, while interest rates were at historical lows before November 2021.

Consumers earning more than R20 000 per month has the highest total debt to annual net income ratio at 150%, the percentage of net income required to pay debts. Debt exposure also significantly increased for consumers earning less than R5 000 per month, with a debt-to-income ratio of 87%, also the highest for this group. This group still requires 65% of its income to pay debts per month.

South African consumers are anxious about money

According to the Deloitte State of the South African Consumer, which forms part of the company’s Global State of the Consumer Tracker, a monthly survey of consumers in 24 countries that has been running since April 2020, 45% of local participants were more anxious than a week before, putting South Africa in the third place of the most anxious countries.

Only consumers in Brazil (53%) and Poland (48%) were more anxious, with financial stress remaining one of the top drivers of anxiety. In the South African survey, four in ten participants said they are anxious about their finances, while a third are anxious about the direction of the economy, with only 38% having money left over at the end of the month after expenses and 57% feeling that their financial situation stayed the same or worsened over the past year.

The survey also showed that the gap between incomes and the cost of living is widening, with many consumers using their savings or take on debt to finance their spending and maintain their living standards. Essentials, such as food and housing, take the bulk of their monthly wallets, putting the share of discretionary expenditure under pressure.

However, local consumers are doing something about their precarious situation by engaging in cost saving behaviour to mitigate pressure from rising prices. Therefore, grocery shoppers were most likely to choose meals based on most of the food they have at home (44%) and dedicate more time to planning their shopping (42%), while about a third switch to cheaper proteins and buy store brands.

ALSO READ: South Africans increasingly worried about personal finances