What to Expect in 2016
After the Budget Speech and State of the Nation address (SONA), South Africans are questioning what’s in store for them and their finances in 2016.
In 2015, we enjoyed stable inflation levels, averaging 4.6%, slow economic growth of 1% y/y Q3 2015, and considerable weakening of the rand against numerous currencies – 35% against the US dollar. In real terms, this meant South Africans became poorer. But what can we expect of 2016?
Regrettably, the economic outlook for 2016 appears to be the similar or worse. On January 28, the South African Reserve Bank (Sarb) Monetary Policy Committee (MPC) announced a deterioration in its inflation outlook. It had anticipated inflation to average at 6.8% this year and 7% the next.
Clearly, Sarb is expecting inflation to breach its target of 3% to 6% for a prolonged period of time. Just one of the reasons why Sarb raised the repo rate by 0.5% in January. Considering the 2016 and 2017 inflation projections, we can likely expect additional interest rate hikes in months to come.
Moreover, as salary increases are predicted to average between 6.5% and 7%, consumers will likely suffer a negative real increase, after factoring debt into their spending.
Reviewing historical inflation figures, numerous items that comprise a big portion of consumer spending have risen at considerably higher rates than the general Consumer Price Index (CPI) spanning 2008 to 2015. In 2015, most of these items rose by 9% to 11%.
These items include education, transport, medical expenses, housing and utilities.
2016 Outlook Not Positive
To add insult to injury, the International Monetary Fund (IMF) has cut its 2016 forecast for economic growth in South Africa to 0.7% from 1.3%. Comparatively, its global economic growth forecast is 3.4% for 2016 and 3.6% for 2017. A touch higher than the 3.1% global economic growth in 2015.
Although this will be a plus for our country’s exports, it will be negative for imports.
The labour market will also take strain this year. Presently, we have an unemployment rate of 25.5%, according to Stats SA. The 2016 outlook is not positive. As slow growth and high inflation levels are expected to prevail in 2016 and 2017.
Consequently, we can expect fewer voluntary job-leavers going forward, due to scarcer opportunities in the labour market.
Tough Year Ahead
In short, consumers can expect 2016 to be even tougher. The inflation target breach is going to hit consumer pockets a bit harder than preceding years. Consumers will have to tighten their purse strings, as everyday essentials increase well above inflation.
The only way to survive is to cut spending and shop around for cheaper alternatives. Anticipated inflation-curbing repo rate hikes will further deplete the wallets of credit users. As costs inflate and discretionary spending shrinks.
Sadly, labour market opportunities will be depressed, due to an excessive 25.5% unemployment and a meagre 0.7% economic growth. The double whammy of the rand’s decline and somewhat stronger global economic growth will boost South African exports. As they will be more competitive in the world economy.
Although, this will in turn increase imported goods prices, again putting pressure on consumers.
Simply put, consumers should brace themselves for a tough 2016. We will all need to budget more frugally so as to cut discretionary spending. As it looks like we won’t be able to depend on real salary increases or better job opportunities.