The SA Reserve Bank’s latest Quarterly Bulletin, released on Tuesday, makes for depressing reading against the soundtrack of rumbling neighbourhood generators. We know the economy contracted in that quarter, but so many indicators went pear-shaped that the surprise might be that gross domestic product (GDP) didn’t contract by more than 0.7% on a quarterly basis.  

Most economic indicators went south, and there is more at play here than the KZN floods and the surge in rolling blackouts. There is a fundamental crisis of confidence afflicting the economy.  

Foreign direct investment (FDI) inflows fell to R26.2-billion from R39.9-billion in Q1. Attracting more FDI is a key plank of President Cyril Ramaphosa’s platform and this is just the latest sign that it is faltering.  

Meanwhile, household debt rose in the quarter to 64.6% of nominal disposable income from 64.3% in the previous quarter. The SA Reserve Bank noted that “most categories of credit increased”. In other circumstances, this might not be a bad economic sign as consumer borrowing is a reflection of consumer spending and confidence. But in the current environment — with consumer confidence going down the drain — it signals that many households are grappling with unsustainable levels of debt at a time when asset wealth is withering. 

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“Households’ net wealth declined in the second quarter of 2022 as total assets decreased while total liabilities increased. The lower market value of assets reflected a decrease in equity holdings along with a substantial decrease in share prices, while the value of housing stock increased,” the SA Reserve Bank said. “Consequently, the ratio of net wealth to nominal disposable income decreased to 359% in the second quarter of 2022 from 379% in the first quarter.” 

The JSE All Share Index fell by 12.3% during Q2, a slump that the SA Reserve Bank said was “its worst quarterly performance since the outbreak of Covid‐19 in the first quarter of 2020.” It’s a small consolation that this mirrored global equity trends.  

Property values have also been in decline. 

“Growth in nominal residential property prices has slowed since the second quarter of 2021, with the year‐on‐year rate of increase in the two available house price indices moderating to 3.2% and 3.4%, respectively, in August 2022 — well below consumer price inflation. Consequently, real house prices have declined on a year‐on‐year basis since December 2021, and by as much as 4.1% in July 2022,” the Quarterly Bulletin said.  

“Lacklustre growth in house prices reflected slowing property demand due to rising interest rates, high unemployment, low consumer confidence and the effect of higher consumer price inflation on households’ purchasing power,” it added.  

The upshot is that South Africa is getting poorer.  

Unsurprisingly, South Africa’s already low rate of savings deteriorated further as well. The national savings rate fell to 13.3% of GDP in Q2 from 16.3% in Q1, the data showed. Rising interest rates don’t seem to be encouraging households to save and many clearly cannot afford to set aside scarce income for a rainy day.  

Gross fixed capital formation — a key measure of investment — also tanked in the quarter, falling to 0.5% of GDP from 3.4% in the previous quarter.  

All in all, a pretty bleak portrait of the quarter to top the disappointing data already out there, such as the economic contraction and the brutal swing of the current account into deficit. Expect these chickens to come home to roost. DM/BM