The explosion of indoor cardio on YouTube; more time to cook as people work from home and newly found hairdressing skills, has had many people reconsidering their pre-lockdown spending habits.
But while the economic threats of Covid-19 have instilled financial discipline, South Africa has to guard against halting its economic wheels, says FNB CEO Jacques Celliers.
Earlier this month, Statistics SA data showed consumer price inflation slowed to 2.1% in May, the lowest level recorded in nearly 16 years.
In fact, Old Mutual chief economist Johann Els was concerned that South Africa now faced a higher risk of deflation as policy responses like the 300 basis point cut in interest rates so far this year have failed to encourage consumer spending.
While many people have been forced to cut back on their spending because of reduced income, Celliers in an interview with FIN24, said banks had experienced a “massive drop” in transactional volumes, across the industry, showing that everyone was saving more.
When people are saving more of their money, banks benefit as they sit on bigger deposits.
But they also lose out on transactional volumes and revenue that they would have generated from lending activities if people bought homes, cars or took out credit for other purposes. However, it’s not just about banks’ transactional volumes, the ripple effects are much bigger.
“An economy needs trade,” said Celliers.
“Unfortunately, we don’t have a big enough economy for 50 million people if we don’t have trade. Whether it’s a spaza shop, at Woolies (Woolworths) or at a restaurant, we need trade. If we all sit at home, you will have a much smaller economy.”
While the South African economy came close to a standstill during the hard lockdown, the move to Level 4 failed to lift retail and wholesale trade sales in May. Stats SA is yet to publish June data but recent trading updates of companies like Spur and The Foschini Group showed that trading remained subdued in June while the jury was still out for July as restaurants were allowed to open for sit-downs only this month.
Celliers joins a growing number of people and organisations who have warned that South Africa cannot save its way to recovery.
Earlier this week Stanlib chief economist, Kevin Lings, warned that while South African households needed to save more, any economy does not want its savings levels to go up to a point where it becomes counter-productive to economic growth.
Not that South African households were anywhere near those high savings levels – the household savings ratio in the country is actually below zero – but when people cut their consumption too much, “economic vibrancy” stops, said Lings.
Celliers said he’s “scared” about the possibility of ending up with a “very, very soft economy” because everyone was looking at someone else to do something to boost the economy.
“Our big industries are disappearing. We are going to have a very low externalised economy. Very few investments are going to come to South Africa now. We’ll export less stuff. Our economy is going to get less foreign tourists. So, it’s the local trade that we need to somehow illuminate,” he said.
Celliers said South Africans would need to put more effort into saving each other’s businesses because continued employment in all sectors was dependant on moving money from one sector to another, one hand to another.
Main Image; Youtube