Watching CNN this past week and the rising
threat of a US-led invasion of Syria has direct consequences for South African
consumers and those property owners with mortgage bonds. This type of middle-eastern
turmoil has the risk of higher oil prices, which impacts the global economy in
terms of lower growth. This in turn impacts on our own South African economic
growth rates and therefore on local employment and household disposable income.
Higher global oil prices also directly impacts our local cost of fuel. A
weakening Rand exchange rate further increases the cost of our imported oil. As
higher transportation costs touch almost every part of the economy and increase
our local inflation rates, you understand how a decision by the US to become
actively involved in Syria can lead to higher local inflation (and therefore
potentially higher interest rates) and lower economic growth. These “external
shocks” to our local economy are nothing new and our ability to weather the
storms depends on the health of our balance sheets. In 2001 as an example the
world experienced the 9/11 terrorist attacks on the world trade centre
buildings and other targets. This was a massive external shock. At the time
however our local household debt-to-disposable income ratio stood at 55.3%. It
currently sits at 75.4% making us more vulnerable to a spike in inflation and
interest rates. The secret to weathering storms caused by external economic
shocks is a low level of indebtedness to keep the debt-service ratio low even
when interest rates rise. This is true for a nation as a whole or for
individuals. You cannot control the external shocks, but you can determine your
level of indebtedness and strength of your personal balance sheet.
The recently released South African Leading
Business Cycle Indicator data (June 2013) by the Reserve Bank indicate a mild
decrease (-0.25%) for the 3 month moving
average. The year on a year figure for the same statistic is mildly positive at
+2.36%. As the broad growth of property trading activity correlates reasonably
well to the Leading Indicator, it therefore becomes and important statistic for
property people to watch carefully. What has been interesting is the surge in
property transfer duty receipts, which indicates increased volumes of trade
nationally. This has been our experience on the ground during the first 8
months of 2013. Sales volumes are up even if pricing is still down in general.
This increase in sales activity is reassuring for estate agents and sellers in
general.
Our current GDP growth
figures have come out at 2% and the producer price inflation figure for July
2013 is 6.6%, up from 5.9% in June, which is indicative of a weaker Rand
translating into local inflationary pressure. Slightly higher inflation rates
can therefore be expected but interest rates are nevertheless still predicted
to remain the same for the next 6 months.
(Author: Andreas Wassenaar, published in The Bugle 4 Sep. 2013)
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