Consumer confidence in South Africa drops to historic lows: index

Despite the lifting of almost all Covid restrictions and improved business sentiment, the FNB/BER Consumer Confidence Index (CCI) plunged to -25 in the second quarter of 2022, having already slipped from -9 to -13 index points during the first quarter of 2022.

Consumer confidence surveys provide regular assessments of consumer attitudes and expectations and are used to evaluate economic trends and prospects. The surveys are designed to explore why changes in consumer expectations occur and how these changes influence consumer spending and saving decisions.

Bar the CCI reading of -33 in the second quarter of 2020 – when the sudden outbreak of the Covid pandemic and subsequent implementation of level 5 lockdown pummelled sentiment – the current reading is the lowest in more than three decades.

A breakdown of the CCI per household income shows significantly different results, with South Africa’s wealthy and middle-income earners significantly less hopeful than the country’s low-income earners.

“A more detailed breakdown of the CCI shows that, while consumer confidence fell notably across all income groups, high-income confidence has soured more than low-income confidence since the end of 2021,” FNB said.

“Having already slumped from -11 to -18 index points in the first quarter, the confidence level of high-income households (earning more than R20,000 per month) crashed to -30 in the second quarter.”

This reading is only three index points north of the historic low of -33 recorded for this sub-index in the second quarter of 2020, with the vast majority of affluent households now anticipating a deterioration in their household finances and, in particular, in South Africa’s economic growth rate, FNB said,

“Similarly, the confidence level of middle-income households (earning between R2,500 and R20,000 per month) slumped from -11 to -23, while low-income confidence (consumers earning less than R2,500 per month) declined from -6 to -16 index points.

“Although consumer sentiment is now very depressed across all three income groups, affluent consumers are considerably more downbeat compared to low-income households.

FNB noted that the decline in optimism among the middle-class can be partly attributed to rising inflation and significant interest rate hikes since the start of the year.

“Whereas spiralling food and fuel prices are probably of primary concern to less affluent households, the prospects of further steep interest rate hikes and sinking share prices on the JSE would have compounded the inflationary pressures when it comes to middle- and high-income households.”

FNB chief economist Mamello Matikinca-Ngwenya noted that The non-payment of the R350 per month social relief of distress (SRD) grant to 10.6 million South Africans in April and May in all likelihood also weighed on the confidence levels of many low-income households.

“However, a substantial improvement in job creation in recent months and Sassa’s commitment to resume the SRD grant payments at the end of June – as well as to catch-up all missed payments from July – probably prevented an even more pronounced decline in low-income confidence during the second quarter,” she said.

Cause for alarm 

Although consumer sentiment was widely expected to weaken further given the worsening inflation and interest rate outlook, the extent of the drop in consumer confidence is alarming, Matikinca-Ngwenya said.

“Save for the panicked level 5 lockdown period during the initial outbreak of the Covid pandemic in South Africa, the FNB/BER CCI is now at its lowest level in 35 years.

“While household consumption expenditure still surprised on the upside in the first quarter of 2022, the dramatic deterioration in confidence points to a sudden slump in consumers’ willingness to spend and foreshadows a significant slowdown in real consumer spending growth relative to the strong first quarter.

“Even though consumers are likely to tighten their purse strings, the surprisingly large fall in the CCI could signify somewhat of an overreaction to recent developments and may not translate into an equally large contraction in consumer spending,” she said.

“Positive developments such as the scrapping of all remaining Covid-19 regulations – including the wearing of masks, limits on gatherings and border checks – a gradual recovery in job creation and the back payment of missed SRD grants could counter some of the mounting inflationary and interest rate pressures.

“Savings accumulation among affluent consumers over the last two years should also underpin spending by high-income households. Nevertheless, the combination of soaring food and fuel prices and increased wariness among consumers will no doubt see a realignment of consumer budgets.”

Households will likely start to draw on savings and slash their discretionary spending – especially on big-ticket durable goods – to buttress purchases of basic necessities and support the recovery in spending on clothing, restaurants, recreation and entertainment following the lifting of Covidrestrictions, she said.

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Consumer confidence in South Africa drops to historic lows: index