In turn, retailers expanded hand over fist on the back of huge property developments. Thousands of new jobs were added to the economy.
This supports the Keynesian economic model, where consumption is one of the key drivers of economic growth. The problem, of course, was that SA consumers accumulated mountains of debt.
The collapse of the US's Lehman Brothers investment bank last September brought the good times to an abrupt end.
Now there's talk that the recovery may be in sight, but don't look to the retail sector. It remains firmly in recession — despite being propped up by social grant spending.
“Anxiety about job security, high levels of household debt, still high inflation in selected areas and low levels of consumer confidence are likely to negatively affect growth in retail sales,” says Standard Bank economist Johan Botha.
Employment and disposable income have the biggest impact on spending. With around 267,000 jobs lost just in the first half of this year the impact on consumer spending is predictable. And the 450 basis points cut over the past seven months will take 12-18 months before feeding into economic growth.
Efficient Group economist Freddie Mitchell cautions against expecting consumers to play a significant role in the revival of the economy. “Do we want to grow on consumer expenditure or on the fundamentals, such as mining and manufacturing? These are more sustainable for an export-driven economy such as ours. Excessive consumption drives inflation and we skirted uncomfortably close to that in the recent boom years.”
Mitchell suggests that government introduce measures to encourage consumers to save. “This will support good economic growth in the long run.”
Source: Financial Mail
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