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Economy
Tuesday, December 1, 2015 - 08:04
A step backwards

A number of issues have weighed heavily on the South African economy. Noticing Eskom’s inability to keep the load shedding down, also not forgetting the high rate of unemployment in South Africa. South Africa lost over 160,000 jobs in the past year, led by a massive drain in the community services industry, amid tough economic conditions in the country.
Momentum/Unisa estimates that household real net wealth declined by 3.9% compared to Q1 2015 (Quarter over quarter seasonally adjusted and annualised - QoQSAA). This means that real household net wealth declined by R64.5 billion to R6 424 billion (R6.424 trillion) over the quarter.
The statistics from the Momentum/Unisa Household Wealth Index 2nd Quarter 2015, paint a dismal picture for South Africa.
Key messages emerging:
• A decline in household net wealth means that on average households will not retire well or according to their expectations;
• Behaviour adjustments needed. Larger share of income needs to be allocated to saving as well as reducing outstanding debt levels.
Executive summary
• South African households’ net wealth decreased in real terms (2010 prices) in the second quarter of 2015 (Q2 2015).
• Momentum/Unisa estimates that real household net wealth declined by 3.9% compared to Q1 2015 (Quarter over quarter seasonally adjusted and annualised - QoQSAA). This means that real household net     wealth declined by R64.5 billion to R6 424 billion (R6.424 trillion) over the quarter.
• This decline was large enough to wipe out all wealth gains since a year ago (Q2 2014).  In Q2 2015 real household net wealth was R9 billion less than a year ago.
• The consequence of this decline is that households will have to review their future lifestyle expectations, as well as adjust their other saving, retirement and investment goals.
• The main cause of the deterioration in the real value of household net wealth can be ascribed to  a relatively strong decline in the purchasing power of the value (real value) of household assets.
• Momentum/Unisa estimates that the real value of household assets declined by R86.4 billion, or 4.3% on a QoQSAA basis. Similarly, the real value of household liabilities declined by R21.9 billion or 6.0% compared to the real value of liabilities in Q1 2015.
• The real value of household assets was adversely affected by a decline in the real value of financial assets invested in shares listed at the JSE, stagnation in households’ contributions to contractual savings products (to annuities, official- and private retirement funds and pension- and group life business), and a slowdown in house price growth.
• The decline in the real value of household liabilities can be attributed to the un-affordability of debt as reflected by among others, a further increase in the average weighted interest rate on loans during Q2 2015. The average weighted interest rate increased to an estimated 12.1% in Q2 2015 from 11.9% in Q1 2015 and is now at the highest level since Q1 2015.
• At 21.9% of amended disposable income, the average instalment (to repay debt) was 6% higher than a year ago (Q2 2014).

Copyright © Insurance Times and Investments® Vol:28.12 1st December, 2015
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