Big trouble for South Africans earning over R20,000 per month

Confidence among South Africans earning over R20,000 per month has tanked, with many now expecting the economy and their finances to worsen over the next 12 months.

This is according to the latest FNB/BER Consumer Confidence Index (CCI), which has dropped from -6 to -20 index points in the first quarter of 2025.

The fieldwork for the first quarter CCI was done days after Finance Minister Enoch Godongwana’s aborted 2025 National Budget was revealed in February, where a two percentage point hike in VAT was proposed.

The Bureau for Economic Research (BER) said that this, along with other negatives around the same time, led to the index tanking.

“The prospect of significantly higher taxes—either via VAT hikes or further bracket creep on the personal income tax front—likely alarmed many consumers,” the BER said.

“Even though the March Budget softened the VAT hike, it still places a significant tax burden on consumers, which would have weighed on sentiment too.”

In addition to the tax-heavy budget, the diplomatic fallout between South Africa and the United States and the knock-on effects of US President Donald Trump’s trade war also hit local sentiment.

The BER noted that the 14-point plunge in the CCI during Q1 2025 is on par with the dramatic drop in consumer confidence when South Africa entered stage 6 load shedding for the first time in Q1 2023.

Speaking of load shedding, the brief return of stage 6 load shedding during the period also contributed to the drop in sentiment.

The first quarter reading of -20 is also the lowest CCI reading since the first half of 2023 and points to an alarming deterioration in the outlook for consumer spending following the strong end to 2024.

All the CCI’s sub-indices declined significantly during the first quarter, with the economic outlook sub-index dropping from -9 to -32 index points.

This reversed all the gains from the electricity supply improvements and the establishment of the GNU following the 2024 elections.

The household finances sub-index of the CCI also slumped from 11 to -1. The sub-index measuring the appropriateness of the present time to buy durable goods dropped from -21 to -28.

Pain for those earning over R20,000 per month

A breakdown of the CCI per household shows that sentiment worsened significantly across all income groups.

The confidence levels of high-income households earning more than R20,000 per month dropped the most, with the confidence reading plummeting from -4 to -30.

Most high-income households expect South Africa’s economic performance and finances to deteriorate over the next 12 months – a complete turnaround from three months prior.

The confidence levels of middle-income households—earning between R5,000 and R20,000 per month—dropped from -7 to -19.

Low-income households—earning less than R5,000 per month—also dropped from -7 index points to -17.

The outlook for household expenditure has notably deteriorated following a surge in retail sales during the 2024 festive season.

“The boost from two-pot retirement fund withdrawals will be significantly less during 2025 compared to the roughly R40 billion paid out in 2024,” said FNB Chief Economist Mamello Matikinca-Ngwenya.

“Trump-triggered trade wars and rising global uncertainty are also reducing the likelihood of further
interest rate cuts.”

“The withdrawal of all United States aid to South Africa and the rapid deterioration in diplomatic relations with the US would also have knocked consumer confidence.”

However, Matikinca-Ngwenya said the most significant blow to consumer sentiment likely emanated from the National Treasury’s tax proposals and the fighting among GNU members.

“Although the 2%-point VAT hike option has been shelved, the budget tabled on 12 March still calls for a 1%-point VAT hike over two years and no inflation adjustments to income tax brackets and medical aid tax credits,” she said.

“Above-inflation increases to social grants and the expansion of the zero-rated VAT basket should partially shield low-income households.”

“But, if implemented, these tax proposals will deal a significant blow to the financial positions of high-income households.”

Bottom Line

The drop in consumer confidence is a deep concern given that it has been the growth engine of the South African economy over the last decade.

Real consumer spending grew by 11.2% (cumulatively) between 2015 and 2024, while real GDP, excluding consumer spending, showed no growth.

Rising inflation, tight monetary policy and higher real taxes will also erode households’ ability to spend while dropping confidence levels will signal a decline in willingness to spend.

Furthermore, the confidence levels of high-income consumers declining the most will only compound concerns, as this group easily has the greatest spending power.

Although the fall in the CCI may be an overreaction as the 2%-point VAT hike has been muted, the outlook for consumer spending and South African GDP growth has deteriorated.

“Structural economic reforms and other confidence-boosting policies are required to spark new growth drivers for the South African economy,” Matikinca-Ngwenya said.