8 hours ago
South African consumers to face financial strain amidst Israel-Iran conflict
Rocket trails in the sky after Iran struck Israel with barrages of missiles, following a massive onslaught targeted the Islamic republic's nuclear and military facilities. The ongoing conflict between Israel and Iran is causing significant fluctuations in global oil prices, which could have dire economic implications for South African consumers.
Image: Ayad Baba / AFP
The escalating conflict between Israel and Iran is sending ripples through global markets, raising concerns over potential economic repercussions especially closer to home in South Africa and the impact on consumers in the country.
Frank Blackmore, the Lead Economist at KPMG, said that the overall impact will hinge on two pivotal factors: the scale and duration of the conflict.
Since the onset of the conflict, oil prices have already begun to rise, and Blackmore stressed the significance of this surge.
'An increase in oil prices traditionally translates to higher costs for transportation and goods, which the consumer ultimately endures,' he said.
In South Africa, where the economy relies heavily on oil imports, subsequent price increases could put further strain on inflation rates, potentially leading the South African Reserve Bank (Sarb) to maintain elevated interest rates for an extended period.
Blackmore further said, "If the conflict intensifies beyond what we are currently witnessing, the impact will be far more significant. If it is resolved swiftly, the effects on the markets will likely be limited. There are two avenues through which the impact will be felt. Firstly through the oil price. We have already seen an increase since the onset of the conflict. Secondly, through the exchange rate. The Rand has depreciated due to heightened uncertainty, which could lead to inflationary pressure on the local economy and the possibility of interest rates remaining higher for longer. Given that both oil and the exchange rate affect the impact of the cost of transporting people and goods around the economy, the inflationary impact will be shifted down onto the consumer in the form of higher inflation. The Reserve Bank may be forced to maintain elevated interest rates for an extended period."
Nigel Green, CEO of independent financial advisory deVere Group, said
the risks to global energy markets were growing, adding that even the threat of closure or interference would 'likely push oil well beyond $100 per barrel, reigniting inflation and altering the current trajectory of interest rate policy in developed economies.'
'Investors are clinging to a framework shaped by central bank support, solid earnings, and disinflation. But if energy prices rise sharply from here, that disinflation story evaporates. Rate cuts could stall. Market momentum could reverse,' Green said.
Adding to the woes regarding interest rates, the US Federal Reserve held interest rates steady for a fourth consecutive meeting this past week.
The possibility of interest rates remaining elevated along with the prospect of fuel prices increasing will leave South African consumers in a tough space.
According to a survey conducted by Debt Rescue, two-thirds of South Africa's credit-worthy consumers stated that they cannot repay their debt due to macroeconomic pressures beyond their control.
CEO of Debt Rescue Neil Roets, said that disturbing insights from the survey show that 41% of people have indicated that they have defaulted on their credit cards over the past year, while 30% have missed payments on retail store accounts.
'These are the two most commonly used forms of credit for day-to-day expenses because they are existing facilities which they have access to, which are now becoming increasingly unaffordable – while providing the only lifeline for many consumers,' Roets said.
In addition, survey outcomes show that 24% of those polled cited defaults on personal loans, with 31% attributing this to unexpected expenses and 21% to loss of employment.
'This points to the widespread financial distress many South African households find themselves in, due to economic pressures which have seen living costs skyrocket over the past few years while there has been very little in the way of financial relief in terms of interest rates, cost of living and tax reductions,' Roets added.
'65% of those surveyed said current economic conditions are significantly affecting their ability to repay debt,' he said.
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