In 2011 the South African economy achieved a growth rate of around three percent. This is slightly up from the 2.9 percent achieved in 2010 and way better than the negative growth of 1.5 percent we experienced during the 2009 recession. While the current economic growth rate of three percent is below South Africa’s targeted rate of five percent to six percent it is still respectable given the difficult global economic conditions.

How did South Africa manage to recover from the 2009 recession?

Most of the economic growth South Africa has achieved over the past two years has been due to a rise in consumer spending.

In 2009, consumer spending declined by 1.6 percent, but then recovered in 2010 to achieve a growth rate of 3.7 percent. The expansion continued in 2011, with consumer spending growing by an estimated, and very impressive, 4.9 percent. Consumer activity has accounted for almost 70 percent of the growth in South Africa’s total domestic expenditure since the end of 2009.

What caused the improvement in consumer spending during 2010 and 2011?

Over the past two years consumer income has risen significantly.

This is mostly due to above-inflation wage increases in both 2010 and 2011. For example, salaries have risen by more than eight percent in each of the past two years, while consumer inflation averaged 4.6 percent over the same period. Crucially, households tend to spend almost all of their income, so a rise in household income usually goes hand-in-hand with an increase in spending, not savings. The eight percent increase in salaries during 2010 and 2011 boosted consumer activity in real terms; in other words, spending increased not only because prices had risen, but also because consumers were buying more.

Unfortunately, the growth in consumer spending over the past two years has not been accompanied by a significant rise in employment.

A rise in employment has the advantage of expanding the consumer base, thereby strengthening and broadening the economic recovery.

There is some evidence to suggest that South Africa’s labour market has at least stabilised after shedding more than a million jobs during the 2009 recession. In addition, parts of the private sector are slowly starting to create additional employment opportunities.

What is the outlook for consumer spending in 2012?

Unfortunately, recent economic data suggest that the South African economy is likely to lose some momentum in 2012.

This loss of momentum is due to the on-going economic weakness in the euro area as well as rising domestic inflation which eats into purchasing power within the household sector.

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