Guiding consumers since 2009

What is South Africa’s high household debt doing to our GDP?

By Danielle van Wyk

Earlier this month ratings agency Standard & Poor’s (S&P) highlighted the high household debt of South African households as a potential risk to the country’s banking sector.

According to the agency’s Banking Industry Country Risk Assessment (Bicra), it estimated the country’s per capita gross domestic product at around $6000 (R78000) for this year, which in US dollar terms was still lower than in 2010.

Matthew Pirnie, S&P analyst, said “We continue to believe that domestic households pose the most significant source of risk for the banks because of their relatively high leverage and low wealth levels compared with other emerging markets.”

Tip: if you find yourself unable to make ends meet due to your debt, click here. 

What does this pressure mean for the economy?

“According to recent data from Stats SA, household consumption expenditure accounts for 61% of the total Gross Domestic Product (GDP) in South Africa. Given high debt levels within the household sector, we can expect both consumption and GDP growth rates to remain subdued for an extended period of time,” added Keorapetse Leballo, investment Strategist at Absa.

Has there been a significant increase in South African household debt in the last year?

Between the end of the second quarter of last year and the end of the second quarter of this year, the household debt to disposable income ratio has marginally decreased from 75% to 71%, according to recent Stats SA data.

“High interest rate environments are normally precursors to lower levels of household borrowing. Households often seek to consolidate their debt when interest rates are high and expected to either increase or remain elevated. However, as soon as borrowing rates start to decrease, debt prudency begins to be suspect,” Leballo stated.

What needs to start happening to alleviate this pressure?

“We look to subsiding inflationary pressures to anchor local borrowing rates lower. Should the household sector become prudent with debt during this accommodative cycle of interest rates, prospective propensities to consume will likely improve the consumption and the local GDP trajectory over the medium to long term horizon,” Leballo explained.

Mismanaging your debt can badly affect your credit score. To review your credit score, click here.

Recent Articles

Featured What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Can your retirement annuity be used as collateral for a loan?

If you have a retirement annuity, you may have wondered whether you can use this as collateral when you take out a loan. We decided to do the leg work and find out whether this is possible or not.

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.

Best ways to save your money short-term

For many, it seems close to impossible to save when spending on holiday getaways, Christmas gifts, while also trying to ensure there’s money left to survive January. Justmoney takes a look at the best ways you can save during the short term.

Deals

Marble Gift Card Special

Price: From R1000
When: Until 25 December 2019
Where: Johannesburg

Trennerys Hotel and Camping Januworry Special

Price: R950
When: From 10 to 31 January 2020
Where: Centane (Eastern Cape)

Bakwena Standard Packages Special

Price: From R999
When: Until 31 December 2019
Where: Nationwide