If consumer confidence continues to dwindle, the South African economy will grind to a halt, according to the South African Institute of Race Relations (IRR).

An IRR report highlights consumer behaviour and spending power, and how much the South African economy depends on consumption expenditure.

The report found that because consumers are under growing economic pressure, the economic outlook was even worse. Consumer spending plays a pivotal role in the economy, with household consumption expenditure being equivalent to over 60% of gross domestic product (GDP).

IRR analyst Gerbrandt van Heerden said a particularly important finding related to credit extension.

“While secured lending levels have flattened out over recent years, unsecured credit levels have more than trebled. In addition, previous IRR reports on the middle classes show that the black middle class is particularly exposed," said Van Heerden.

"With interest rates likely to rise in the medium term in response to foreign rate hikes, the South African consumer will come under growing economic pressure, and black consumers will be hit the hardest.”

During the high economic growth years of 2004 to 2007 – when the economy averaged growth in excess of 5% of GDP – levels of consumer confidence and spending peaked. In recent years, however, confidence levels have fallen, reaching decade lows.

The report identified clear differences in spending patterns between higher- and lower-income groups.

Lower-income groups tend to be more survivalist, and spend a relatively greater share of their income on necessities such as food and clothing. Higher-income households have the space to devote more to items such as insurance, medical care, and savings.

There are also deep racial consumption inequalities despite the black middle class having risen to approximately the size of the white middle class. For example, in 2014 61% of white households spent more than R10 000 per month compared to only 8% of black African households.

Another finding of the report is that a large proportion of decision makers in households are women.

News24.com