Deeply indebted consumers facing ‘perfect storm’

TWO of SA’s economists are predicting that the rand may slide to as much as R11.60 or weaker to the dollar in the near future and they say this will have a “severe impact” on everything from the price of food to imported vehicles.

Independent economist Dawie Roodt and Brenthurst Wealth Management investment strategist Mike Schüssler both predict that consumers are in for hard times with middle- and lower-income groups expected to suffer the most.

“This country is facing a perfect storm and there seems to be absolutely no will by the government to do anything about it. They have reached the point where they can’t even guarantee loans for parastatals like Eskom because the fiscus is broke,” Mr Schüssler said.

Mr Roodt predicted that there would be an increase in VAT in the short term and that other forms of taxation such as capital gains tax would be expanded.

Both economists expected further downgrades from ratings agencies Standard & Poor’s and Fitch Group, which they said would “almost certainly” force the Reserve Bank to increase interest rates “which will further negatively impact on consumers”.

Investec economist Annabel Bishop said in a note that the risk of a credit rating downgrade was evenly weighted with no downgrade. Factors such as the country’s labour unrest were worsening existing structural problems and weakening investor confidence domestically and internationally as well as negatively affecting exports and export competitiveness in an environment where SA’s exports were already suboptimal, she said. Exports have dropped from 37% of gross domestic product (GDP) in 2008 to close to 30% of GDP at present.

“Import growth has been climbing steadily, reaching 34% of GDP in 2013 from 25% of GDP in 2003, which has placed pressure on the rand. Should the level of strike action in 2014 prove to be the norm, then SA (is) … likely (to) receive further credit rating downgrades,” she said.

The South African Revenue Service was due to release trade statistics for August on Tuesday afternoon.

The consensus is for the figures to show a trade deficit of R8.7bn from a deficit of R6.9bn in July.

Debt Rescue CEO Neil Roets said a slide in the local currency would have “dire consequences” for consumers who already owe more than R1.44-trillion in accumulated debt.

“The massive (price) increase of all commodities being predicted by economists is going to have a major impact on the disposable income of hard-pressed consumers. We are going to see a substantial rise in bankruptcies of consumers who have simply reached the end of their tether with an exponential growth in stressed debtors seeking relief by going under debt review,” he said.

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