Confidence amongst South African consumers is still in the dumps, with wealthy South Africans (those earning above R20,000) concerned about the economy’s trajectory.
After jumping from 25 index points during Q2 2023 to -16 in Q3 2023, the FNB/BER Consumer Confidence Index (CCI) dropped slightly to -17 in Q4.
Although this is an improvement from the year’s first half, the latest reading is the lowest festive-season consumer confidence reading in over two decades – even lower than the -12 recorded during the Covid-19-affected Q4 2020.
Consumers are likely to drop spending during this holiday season, which is a blow for retailers, especially those who sell luxury goods.
The slight drop in the overall CCI was due to a relapse in the economic outlook sub-index, which dropped from -22 in Q3 to -28 in Q4.
However, the household financial outlook sub-index increased from -1 to +3, while the index measuring the appropriateness of the present time to buy durable goods (such as vehicles, furniture, etc.) increased by 1 index point to -25.
Nonetheless, most consumers still feel that it is not the right time to buy big-ticket durable goods.
Economy vs household
On an income basis, those in high-income households (earning more than R20,000 per month) and middle-income households (earning between R5,000 and R20,000 per month) dropped by two index points.
Meanwhile, the confidence of low-income households (earning less than R5,000 per month) improved slightly – though it remained in negative territory.
“With a CCI reading of -13, low-income households are slightly less pessimistic about the outlook for the national economy and their own household finances compared to more affluent consumers,” FNB said.
“Sustained strong job growth heading into the festive season, especially in the tourism sector, may have countered the adverse impact of cost-of-living pressures on low-income households in general,” FNB Chief Economist Mamello Matikinca-Ngwenya said.
“The announcement that the Social Relief of Distress (SRD) grant will be extended through March 2025 probably also buoyed the confidence of the 8.6 million SRD grant recipients.”
For high- and middle-income consumers, high interest rates and a marked degeneration in South Africa’s fiscal position are causing concern.
“In its November MTBPS, the National Treasury said it would introduce additional measures to raise tax revenue and cut real government spending in 2024, which will adversely affect the disposable income of high- and middle-income consumers in particular,” Matikinca-Ngwenya added.
Interestingly, consumers are far more pessimistic about the outlook for the national economy than their own household’s perceived financial prospects.
The vast majority of households, particularly the wealthy, are pessimistic about the outlook for the South African economy, but a small majority of households (especially the less wealthy) expect their household finances to improve over the next year.
“To be sure, measured from 1994, the average reading for the economic outlook sub-index of the CCI (0) is 11 points lower than the average reading for the household financial prospects index (+11). However, the reading for the economic outlook index is currently a massive 31 index points lower than the household finances index,” FNB said.
“The gap between these two sub-indices widened again in the fourth quarter and is especially large for high-income households (38 index points).”
“To an extent, this suggests that consumers are cognisant of the adverse implications that factors like high levels of load shedding, Transnet’s logistical constraints and a tightening in fiscal policy hold for economic growth in South Africa. However – rightly or wrongly – they do not expect flagging economic growth to lead to an equivalent deterioration in their own financial positions,” Matikinca-Ngwenya explained.