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SAfricans over purchasing on credit: Economist

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South African consumers have over the few last weeks flooded the country’s stores, buoyed on by end of year bonuses and festive season sales. Despite the country’s economy seen as being at its weakest in years, this has done little to damper consumers from spending their hard earned cash.

But economists have warned that the excessive spending may come back to haunt consumers, particular in what could be a difficult year ahead for the economy.

Yumna Ebrahim, an economist at Econometrix suggested this trend of spending was indicative of a specific consumer culture present in South Africa, whereby citizens were preferably purchasing on credit, with funds they did not have. And because credit cards are easily accessible, a widespread attitude of “spend now, worry later” was persisting.

“The way they are advertising says that if you want something you must go out and get it, and you can easily use this loan or that loan to have it,” she explained.

Amongst the main reasons why consumers have received such a financial boost has been the slowdown of inflation. This coupled with a drop in petrol for December, and an expected drop in January as well, has given consumers a renewed sense of confidence to go out and spend a bit extra.

“I call it the petrol price holiday; we don’t know how long the petrol price holiday will actually last and when the tide will turn. Either the price of Brent crude oil will rise or the rand/dollar exchange rate will depreciate, and then it knocks off some of the benefits we receive,” she said.

Ebrahim also suspected that at some point during 2015 interest rates would rise. This would place somewhat of a burden on consumers who had overused their credit, forcing them to pay more on their loan repayments. With many South Africans already highly indebted, this was likely to put a major strain on many locals.

“My advice to anybody with debt is to try and retire as much of it as possible before we get into the rising interest rates cycle, which should kick in sometime next year,” she recommended.

Other suggestions were that consumers curb on impulse spending, as well as budget for almost all their planned purchases.

Attempting to provide an economic forecast for 2015, Ebrahim said it was important the country not experience any major strikes, as has been seen in recent years. During the past year, a more than five month platinum strike put a severe dent in the local economy.

“Those strikes slowed down the growth of the economy, and unless it is growing it cannot create jobs. I’m hoping in the year to come we don’t have such devastating strikes. If we don’t, hopefully the economy will grow at a faster pace be able to expand, hopefully creating more jobs,” she said. VOC (Mubeen Banderker)


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