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'Consumer woes nearly over'

By unknown | Jan 05, 2009 | COMMENTS [ 0 ]

Isaac Moledi

Isaac Moledi

Last year witnessed one of the world's worst economic fallouts but South Africa seemed to have escaped the financial crunch, thanks largely to tough bank lending criteria.

South Africans, says economists and other experts, can begin to breathe more easily since recent economic developments show that there is now light at the end of the tunnel.

The worst might be over but, says Martin Schultheiss, Homenet chief executive, tough times are still in the offing.

For the majority of South Africans the year was indeed difficult as the global economy came to grips with the world's most biting financial crunch.

Glacier Research's Marize Pieters says it all began about 15 months ago with the collapse in the US housing market and ended in a global credit crunch that has seen a number of the largest and oldest independent financial institutions collapse.

Among other things the credit crisis has been the catalyst for a meaningful slowdown in global growth, resulting in major economies struggling to avert a recession.

Hundreds of thousands of jobs throughout the world were lost.

Central banks responded by firstly injecting liquidity into the market and lowering interest rates to stimulate lending and consumer spending.

Though South Africa's exposure to the sub prime crisis has been limited so far, owing to strict lending criteria, negative sentiment from global investment markets has had a direct impact on our economy.

This was as offshore investors continued to sell out of emerging markets like our own.

This resulted in a sharp depreciation of the rand, which together with high inflation, high interest rates and the poor demand for resources resulted in a poor local economic outlook.

On the home front consumers were no longer awarded 100 percent bonds and "prime minus" pricing became a thing of the past.

This is mainly due to the banks' strict lending criteria, which resulted primarily from the introduction of the National Credit Act.

Because of this consumers now have to put down sizable deposits to get their foot through the bank doors.

The banks' risk appetite has also decreased as home loans become less profitable and riskier.


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