Massive turnaround for South Africans earning more than R20,000 a month
Confidence among middle and high-income earners in South Africa has staged a massive turnaround in the third quarter of the year, boosted by the government of national unity, the near-end of load shedding, and a cash boost from the two-pot retirement system.
This is according to the latest FNB and Bureau for Economic Research (BER) Consumer Confidence Index, which is continuing its march into positive territory—now sitting at its best position since before the onset of the Covid-19 pandemic.
According to the index, South Africa is currently sitting with an index score of -5, up from -10 in the second quarter of the year.
Although the latest reading remains somewhat below the long-term average of the CCI (at zero since 1994), the reading of -5 is the highest that confidence has been since the first half of 2019, before the global outbreak of the Covid-19 pandemic.
“The 10-point jump in the CCI over the last six months—and 20-point increase since mid-2023—signals a pronounced improvement in consumers’ willingness to spend and bodes well for the outlook for consumer spending for the remainder of the year,” the BER said.
Whereas the second-quarter increase in the CCI was primarily driven by a major improvement in the economic outlook—on the back of the cessation of load-shedding—the third-quarter uptick in the index is mainly thanks to a marked increase in the household financial outlook.
There has also been an improvement in the sub-index measuring the appropriateness of the present time to buy durable goods, which represents consumers’ buying habits and is a broad signifier of an economy that is trending upward.
Income levels
A breakdown of the CCI per household income group shows that the third-quarter increase in overall confidence was driven by much-improved sentiment among high-income households, as well as a further uptick in middle-income confidence.
Having slumped from -14 to -16 at the time of the second quarter survey—conducted before the formation of the GNU—the confidence levels of high-income households earning more than R20,000 per
month rebounded to a 5-year high of -6 in the third quarter.
The confidence levels of middle-income households earning between R5,000 and R20,000 per month improved to -4 during the third quarter, after leaping from -17 to -9 in the previous quarter.
FNB Chief Economist Mamello Matikinca-Ngwenya said a confluence of positive developments has bolstered the confidence levels of South Africa’s more affluent consumers over the last six months.
“These include the formation of a government of national unity, the absence of load-shedding, a stronger rand exchange rate, substantial fuel price declines, a deceleration in inflation and expectations of interest rate cuts in coming months.
“Moreover, the implementation of the two-pot retirement system on 1 September now allows consumers access to a portion of their retirement savings, which will no doubt hearten households experiencing financial distress,” Matikinca-Ngwenya said.
The confidence of low-income households earning less than R5,000 per month) soared from -17 to -4 index points during the second quarter – posting the largest increase of the three income groups – but slipped back slightly to -7 during the third quarter.
Matikinca-Ngwenya said that although the termination of load shedding, the deceleration in food inflation and substantial fuel price cuts would also have buoyed the confidence levels of less affluent consumers in recent months, low-income households are less likely to have pension funds and debt that is tied to the prime interest rate.
“Prospects of interest rate cuts and the implementation of the two-pot retirement system would, therefore, be less beneficial to low-income consumers.”
Outlook
The BER noted that the 5-point uptick in consumer confidence during the third quarter marks the third consecutive increase in consumer sentiment this year, propelling the CCI from an average of -20 in 2023 to a 5-year high of -5.
“This signals a striking improvement in consumers’ willingness to spend. Concomitantly, the deceleration in inflation from 6% in 2023 to 4.6% by July 2024, the introduction of the two-pot retirement system and a strong likelihood of an interest rate cut by the end of September will bolster real disposable income, and hence the ability of consumers to spend,” it said.
This bodes well for the outlook for real consumer spending during the remaining months of the year, with durable goods consumption, in particular, standing to benefit from the rise in confidence—especially among affluent consumers—the implementation of the two-pot retirement system and expected interest rate cuts.
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