FNB and the Bureau for Economic Research (BER) have published the latest Consumer Confidence Index (CCI), showing a strong rebound in consumer confidence following the country’s strict Covid-19 lockdowns earlier this year.
The CCI leapt by 11 index points to a level of -12 in the fourth quarter of 2020, extending its third-quarter gain of 10 index points.
The sudden outbreak of the Covid-19 pandemic and subsequent severe economic restrictions sent the CCI crashing from an already depressed level of -9 in the first quarter to a 35-year low of -33 during the second quarter.
This means that the CCI has now regained most of its lost ground.
Despite this increase, however, the latest reading of -12 constitutes the lowest festive season CCI reading since 2015 and remains well below the average CCI reading of +2 since 1994.
Wealthy South Africans not optimistic
The index shows that high-income households are, in particular, not nearly as optimistic as low-income households about the outlook for their finances.
Whereas a net 17% of low-income households expect their financial positions to improve over the next 12 months, only 2% net of high-income households and 4% net of middle-income households expect any improvement next year.
The sharp divergence in expectations for household finances helps to explain why the confidence levels of low-income consumers are much less depressed compared to that of middle- and high-income households.
“The further easing of restrictions and concomitant uptick in economic activity greatly benefits low-income households in South Africa, as most low-income consumers were unable to earn a living by working from home,” said FNB chief economist Mamello Matikinca-Ngwenya.
“Millions of low-income households would also have been relieved to hear that the expiration date for the Covid-19-related social grant top-ups were extended from October until the end of December 2020, while the unemployed will continue to benefit from the Social Relief of Distress (SRD) grant until January 2021.”
Combined, these Covid-19 measures amount to an additional R6 billion to R7 billion of disposable income for poor households per month, in turn supporting the non-durable goods retail sector where low-income consumers spend the bulk of their household budgets.
Slight declines in petrol and paraffin prices may also have bolstered low-income confidence somewhat during the fourth quarter, Matikinca-Ngwenya.
However, for wealthier South Africans, things are far more subdued, and the impact of the virus hits in different ways.
Although discretionary spending by more affluent consumers is also expected to edge up further over the Christmas period, the size of the rebound will likely be inhibited.
This is due to adverse impacts of the coronavirus pandemic on:
- Salaries and wages, which are lower;
- Overtime payments, which are not as abundant;
- Commissions have been truncated; and
- End-of-the-year performance bonuses are lower than before.
“The 300-basis-point decline in the prime interest rate since the end of 2019 would have helped to soften the blow for indebted households, but lending rates have not come down further since the last 25-basis-point cut in July.
“The fourth quarter saw the time-to-buy durable goods index continue to recover, but the vast majority of consumers across all income groups still consider the present time as highly inappropriate to purchase big-ticket items such as passenger cars, household furniture and jewellery.”
The rebound in consumer confidence is good news for the broader South African economy, as household consumption accounts for roughly two-thirds of South Africa’s GDP, said Matikinca-Ngwenya.
“However, the fact that the confidence levels of affluent consumers – the group with the largest spending power – are still so depressed points to a more muted recovery in overall consumer spending during the fourth quarter compared to the noticeable jump witnessed in the CCI,” said Matikinca-Ngwenya.
“Non-durable goods sales are expected to outshine the other consumer spending categories heading into the New Year, but could come under significant pressure once the Covid-19-related welfare payments expire.”
The termination of the social grant top-ups and SRD grant therefore holds significant downside risk for both the confidence levels and spending power of low-income households, she said.
“The apparent resurgence of Covid-19 infections in the Western and Eastern Cape and possible renewed restrictions could also weigh on consumer sentiment and hamper the pace of recovery in household expenditure during the first quarter of 2021.”