Global Courant
After falling from -8 to -23 index points in the first quarter of 2023, the FNB/BER Consumer Confidence Index (CCI) fell even further to -25 index points in the second quarter of 2023.
According to the Bureau of Economic Research (BER), the CCI ranged between a low of -36 recorded during the harsh Covid-19 lockdown in 2020Q2 and a high of +26 when Cyril Ramaphosa was elected president of the country in 2018Q1, with a average position of zero since 1994.
The latest reading of -25 is the second lowest CCI reading since 1994 and indicates that consumers are extremely concerned about South Africa’s economic outlook and their household finances.
“Consumer confidence has now fallen back to the same low levels recorded in the second quarter of 2022, when the economic fallout from the Ukrainian war – including rising fuel and food prices, higher interest rates and falling stock prices on the JSE – became apparent. ”, said the BER.
Consumer confidence was also negative for all sub-indices.
The CCI’s economic outlook sub-index fell 3 index points to -37, while the time-to-buy durable goods index fell another point to -35.
“Both indices are now deeply negative, suggesting that the vast majority of consumers expect a deterioration in South Africa’s economic growth over the next 12 months and view the current time as highly inappropriate to buy durable goods (e.g. and electronic goods)”, according to the BER.
The CCI’s Financial Perspectives for Households sub-index fell further from -1 to -2 index points in the second quarter and is now well below the average reading of +11 for this sub-index.
“In general, consumers seem much more pessimistic about the outlook for the national economy than they are about their household finances,” the economists noted.
Middle class and high income alarms
A more detailed breakdown from the CCI shows that along income lines, for the second consecutive quarter, the confidence level of high-income households earning more than R20,000 per month deteriorated the most, from -31 to a new all-time low of – 40.
Affluent consumers are not only deeply alarmed about the outlook for the South African economy, but now also fear that their household finances will deteriorate over the next 12 months, according to the BER.
They are also the most pessimistic of all income groups about the appropriateness of the current time to buy durable goods.
The confidence level of middle-income households (earning between R5,000 and R20,000 a month) also weakened from -21 to -22, while the confidence of low-income households (earning less than R5,000 a month) slightly increased from -17 to -16 index points.
“High-income confidence is now much lower compared to low- and middle-income confidence, and even below the extraordinarily low levels reached during the height of the Covid-19 pandemic,” the group said.
FNB chief economist Mamello Matikinca-Ngwenya said further rate hikes, depreciation of the rand and concerns about South Africa’s diplomatic relations with the rest of the world are likely to have exacerbated the negative impact of the electricity crisis on high-income confidence.
Wealthy consumers are more likely to invest – at a high cost – in alternative sources of electricity such as solar energy or batteries and are also more likely to have debt linked to rising interest rates (e.g. unsecured debt).”
“With primary rates rising 475 basis points over the past 2 years, debt burdens are really starting to bite. The weaker exchange rate of the rand is also putting upward pressure on the cost of foreign travel and imported goods such as new vehicles, typically purchased by affluent consumers.”
Tax runoff and continued high food inflation are likely to be the main concerns of low- and middle-income households, but sharply lower paraffin prices and the expansion of the service sector job recovery could mitigate the impact on less affluent consumers, Matikinca-Ngwenya said.
Retail warning
The BER said the further deterioration in high-income consumer confidence levels does not bode well for the retail sector, as affluent consumers have the highest purchasing power of the various income groups.
“Sales volumes of expensive durable goods such as new vehicles, jewellery, furniture and household appliances – and possibly even semi-durable goods such as clothing and footwear – are likely to deteriorate due to high interest rates and expensive investments in alternative energy sources. continue to erode the purchasing power of high-income households,” it said.
While low- and middle-income households are also quite despondent, the relatively stable confidence levels among these income groups in the second quarter point to some resilience among less affluent households.
“The incomplete recovery in post-Covid employment and the expected slowdown in inflation – especially in food prices – should prevent an outright collapse in real consumer spending in the second half of 2023 amid extremely depressed consumer confidence,” said the BER.
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