Big turn for South Africans earning more than R20,000 a month

Despite a slight improvement in sentiment in Q3 2023, South African consumers are still downbeat over the state of the economy.

However, the country’s higher-income households – earning more than R20,000 a month – have seen a significant recovery in confidence after hitting a new low in the last quarter.

The FNB/BER Consumer Confidence Index (CCI) grew from -25 in Q2 2023 to -16 in Q3.

The -25 reading recorded in Q2 2023 was tied as the second-lowest reading for the CCI on record since 1994, with the historical low being during Q2 2020 (when South Africa entered hard lockdown for the first time) at -36.

Although the index recovered in Q3 2023, the reading of -16 is still well below the long-running average of -16, signalling there is a lack of willingness for South African consumers to spend.

FNB said that the recovery in the CCI was mainly due to the strong rebound in the economic outlook sub-index (jumping from -37 in Q2 to -22 in Q3 ) and the improvement in the time-to-buy durable goods sub-index (improving from -35 in Q2 to -26 in Q3).

The financial outlook sub-index also increased by 1 index point to -1.

All three sub-indices are still well below their long-term average readings, but consumers are more concerned about the outlook for their national economy than their own household finances.

High-income households – those with earnings of more than R20,000 – saw a huge rebound in their confidence levels from -40 in Q2 2023 to -17 in Q3.

Load shedding, the rand’s weaknesses, tensions with the US and high-interest rates all concerned affluent consumers.

Middle-income households – earning between R5,000 and R20,000 per month – also saw their confidence levels improve from -22 in Q2 to -15 in Q3, whilst confidence levels for low-income households remained unchanged at -16.

“While the financial pulse of the nation remains weak, there appears to be some light at the end of the tunnel for consumers,” FNB Chief Economist Mamello Matikinca-Ngwenya said

“The CPI inflation rate cooled from 7.1% in March 2023 to 4.7% in July, fuelling hopes that the South African Reserve Bank has reached the end of its interest rate hiking cycle.”

“Combined with a sustained recovery in employment – with another 154 000 jobs added during the second quarter – lower inflation should bolster the purchasing power of consumers somewhat towards the end of 2023.”

The decline in load shedding, the further investment in alternative power supplies, and diminished concerns over ties with the West also heartened consumers.

These positive impacts minimised the effects of the truck attacks on the N3 transport corridor in July and the week-long taxi strike in Cape Town in August.

Although the rebound in consumer confidence should lead to consumers being more willing to spend, FNB said that the ability of households to spend has likely not changed much.

Consumer sentiment regarding the outlook for their household finances should remain at sub-par levels during the first three quarters of 2023.

Therefore, it is unlikely that real consumer spending growth, particularly on interest-rate sensitive goods and discretionary goods and services, will accelerate meaningfully during the third quarter.

Hence, in Q3, there is little chance of a substantial acceleration in consumer spending growth, especially on interest-rate sensitive goods and discretionary goods and services.

That said, a moderation in inflation, particularly food prices, could start to relieve some pressure on retailers’ sales in Q4 2023. Projected interest rate cuts could also improve consumer spending by mid-2024.

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