South African consumers are gaining confidence in the economy, according to the latest FNB/BER Consumer Confidence Index (CCI), with middle-class and upper-income South Africans reigniting a spark in consumer spending.
The overall index, compiled by FNB with the Bureau for Economic Research (BER) recovered from -20 to -8 points during the fourth quarter of 2022.
This, after the index plunged to -25 index points during the second quarter of this year, said FNB.
“Even though a reading of -8 still signifies depressed consumer sentiment, the scope of the rebound relative to the third quarter comes as a surprise given the sustained high inflation, frequent load shedding, successive significant interest rate hikes and a worsening global economic backdrop,” FNB said.
A rebound in consumer sentiment shows an improvement in willingness to spend. Despite the will to spend more, consumers’ ability to do also needs to improve to translate into a significant increase in household consumption, the bank said.
FNB’s chief economist Mamello Matikinca-Ngwenya said that while sharper interest rate hikes are still on the horizon, consumer sentiment is significantly improving.
This is positive news for the economy and suggests that household consumption expenditure is holding up – or even expanding slightly – despite difficult economic conditions, said Matikinca-Ngwenya.
The most recent movements by the CCI bring consumer sentiment more or less in line with the level attained during the same period last year (-9), as well as the year before (-7).
The graph below, provided by FNB, indicates the CCIs movement since 1994.
The FNB/BER CCI is based on surveys of consumer attitudes and expectations by posing three questions to adult South Africans. The questions include the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.
Responses to all three of these questions saw an improvement in overall sentiment, according to FNB.
- Consumers’ economic outlook increased from -31 the quarter before to -19.
- Household financial outlooks increased from -2 in the third quarter to 13 in the final portion of the year.
- South African consumers are also finding it a more suitable time to buy durable goods, with this metric increasing from -28 to -17 over the quarter.
High-income sentiment up
FNB said that South Africans in the upper range of income (those who earn more than R20,000 per month) saw a 17-point increase. Middle-income households (earning between R2,500 and R20,000 per month) also improved from -19 to -6.
Developments in the middle and upper-income ranges stand in contrast to low-income confidence. For those who earn less than R2,500 per month, their confidence declined a further 3 points from -3 to -6.
Despite the decline, low-income households remain the most optimistic about the outlook for their household finances.
Both middle and high-income households now expect an improvement in their household finances over the next 12 months.