South African consumers are under immense financial pressure and are increasingly unable to service their debt, the Momentum-UNISA Consumer Financial Vulnerability Index (CFVI) showed.
The CFVI fell to 47 points in the last quarter of 2022, its lowest level in 18 months, from 49.7 points in Q3 of 2022.
The index’s average level for 2022 was 49.6, a mild improvement from 2021’s average of 49.1.
When the index is between 40-49, it indicates that consumers are very exposed and financially insecure, while results above 50 indicate mild exposure and increased financial security.
73.5% of respondents stated that they felt insecure about their finances at the end of 2022.
All four sub-components of the index deteriorated in the last quarter of 2022, with consumer income decreasing, expenditure increasing, reduced savings, and heightened debt-servicing costs.
The report stated that consumer expenditure regularly exceeded income in the last quarter of 2022.
The number one contributor to increased consumer vulnerability is load-shedding, political instability and corruption, and rising food prices.
The increased vulnerability of South African consumers is coupled with an increase in private sector credit extension (PSCE) growth in January 2023.
PSCE grew by 8.42% in January, ahead of expectations from ABSA of 8.2% and a Reuters consensus of 7.5%.
According to ABSA, a worrying driver of PSCE growth is the increased use of unsecured forms of credit by households.
ABSA said that this indicates that South African consumers are engaging in distressed borrowing, which is alarming.
This indicates that consumers in South Africa have to take on debt to make ends meet, which will impact consumer demand.
Furthermore, the outlook does not look good for South African consumers.
Two-thirds of respondents to the Momentum-UNISA survey expect further increases in spending in 2023, while 70% expect South Africa’s economic performance to deteriorate and unemployment to increase.