[imagesource:rawpixel]

With statements like “South Africa is hanging on by a thread – with little to no relief on the horizon for the next two years”, it’s easy to want to pack up your stuff and move in with your retired parents in Hermanus. But we have to weather this storm, for now at least.

Following the release of Standard Bank’s end-of-year results in March, CEO Sim Tshabalala said the global economic environment continues to be marked by uncertainty and supply shocks from conflicts in Ukraine, the Middle East, and Africa.

All these global events have put pressure on economies all across Africa, and South Africans in particular are starting to wonder how much more we can take.

Banks predict that there will only be a slight moderation in inflation in 2024, with an average of 5% throughout the year. This is at the upper end of the Reserve Bank’s target range of 3% to 6%, which means that significant rate cuts are unlikely to happen soon.

As a result, the Reserve Bank is expected to reduce rates by 75 basis points in 2024, beginning only in September.

Economist Neville Berkowitz highlighted that this is very bad news for middle-class South Africans, who have a tough two-year ride ahead of them.

The middle class is facing a dire financial crisis.

According to the latest Eighty20 Credit Stress Report, middle-income households earning an average of R25,000 a month and individuals earning an average of R15,000 a month are already burdened with spending 79% of their monthly income to pay on credit instalment payments.

However, Berkowitz pointed out that after deducting an average tax rate of 8.2%, they spend closer to 86% of their take-home pay on instalment debt repayments. That number should send chills down the middle class’ spine.

“In December 2021, most of the 3.5 million credit-indebted middle-class people spent R1 out of every R2 of their take-home pay on credit instalment payments.

“By December 2023, this had increased to R4.30 out of R5 as interest rates jumped 120% from November 2021 to May 2023,” he said.

Several economists expect interest rates to decrease only 1.25% p.a. during 2024-2026, but with the average indebtedness of the middle class at R152,715, a monthly drop in the interest rate of 1.25% p.a. will save them only R159 a month.

What’s worse, when you add higher tax payments, inflation remaining around 5-6% p.a., a potential 1% increase in VAT after the May 2024 General Election, and other rising costs for the middle-class bears – any interest rate savings will be quickly wiped out, and monthly expenses will increase, he said.

“Unfortunately, there is little to no reprieve in sight for most of these well-over-borrowed middle-class people in the foreseeable future,” said Berkowitz.

Berkowitz noted that the consequences for the middle class are potentially disastrous over the next two years as they are financially stretched further each month, waiting for a meaningful drop in interest rates – which is not on the horizon until at least 2027.

Although now seems like the perfect time to panic, now is NOT the time to panic – rather make sure your finances are properly managed. Navigating the quagmire that is South Africa in 2024 alone is not advisable, so reach out to 123 Consulting if you feel the water lapping at your feet.

Financial manoeuvring will be much less stressful if you involve someone with the expertise to advise you. 123 Consulting has a wealth of expertise that can assist you in keeping you, and your business, afloat during this storm.

[source:businesstech]