Household cash flow conditions hover around the break-even level
The TransUnion Consumer Credit Index remained stable in much of 2016, declining by a marginal 0.7 points to 49.6 in the fourth quarter. The index, which is based on consumer credit behaviour, household cash flow conditions and debt servicing costs, has hovered around the break-even level.
A reading below 50 indicates deteriorating credit health while points above 50 signify improvement. John Loos, a household strategist from FNB, said on Thursday: "I wouldn’t read too much into it. The index has stayed very close to the 50 line with fairly insignificant changes."
Loos said the index seems to be flattening out instead of deteriorating with fairly insignificant variances: "We may even see a slight rise in the year. The economy may do better with the end of the drought and the rand remaining fairly stable."
Russell Lamberti, an economist at ETM Analytics, said on Tuesday that the latest reading wasn’t an indication that consumer credit health had improved, but that it had remained the same. "There is obviously only so much the industry can do. The bigger picture is that the South African economy has become relatively uncompetitive," he said. "Wages are stagnating and business investment conditions are too weak to raise employment levels enough."
The slight drop in the index is due to falling household cash flows, which are at their lowest since 2009, along with the inflationary environment in 2016, which made it difficult for households to spend.
While there has been a decline in new consumer defaults and debt servicing which has kept the index stable, TransUnion Africa CEO Lee Naik said weak macro-economic conditions still called for caution in assessing the health of the industry:"Our biggest concerns are the macro-economic conditions and the impact they may have both globally with Brexit and Donald Trump becoming US president, as well as locally with the state of the nation address tonight."