The number of consumers and businesses who are losing confidence in the South African economy has grown significantly mainly due to the impact of the persistent energy crisis as sentiment in the sectors plunged to historic levels.
Data yesterday showed that the FNB/BER Consumer Confidence Index (CCI) in the first quarter of 2023 fell to its lowest in three years.
The CCI, which is sponsored by First National Bank (FNB) and compiled by the Bureau for Economic Research (BER), slumped to a reading of -23 points, from -8 points in the fourth quarter of 2022.
All three sub-indices of the CCI declined dramatically during the first quarter of 2023.
This was the third lowest CCI reading on record since 1994, and indicative of extreme concern among consumers about South Africa’s economic prospects and their household finances.
The latest reading was broadly in line with the extraordinarily weak consumer confidence level recorded during the third quarter of 2020, as well as the second quarter of 2022 when deadly floods devastated KwaZulu-Natal and the economic ramifications of the Ukrainian war.
The economic outlook and time-to-buy durable goods sub-indices of the CCI dropped by 15 and 17 index points respectively and, at -34, are now both deep in negative territory,
The survey showed that the vast majority of consumers believe it was inappropriate to buy durables like vehicles, furniture and household appliances in anticipation that South Africa's economic growth over the next 12 months would deteriorate.
While consumers no longer expect their household finances to improve over the next year, they were, nevertheless, considerably less pessimistic about their own financial prospects compared to their gloomy expectations for the economy in general.
This level of optimism is not surprising seeing that the country has been grappling with the impact of severe electricity shortages, which is hobbling businesses and jeopardising economic growth.
FNB chief economist Mamello Matikinca-Ngwenya said the implementation of intensified load shedding had crippled economic growth and hampered consumer confidence.
“The alarming increase in power outages since December and the concomitant deterioration in South Africa’s economic prospects no doubt rocked consumer sentiment during the first quarter,” she said.
“Spiralling food prices, another interest rate hike and a sharp depreciation in the rand exchange rate likely added insult to injury. However, further job creation in the still-recovering services sector may have softened the blow to low- and middle-income confidence.”
A more detailed breakdown of the CCI shows that the confidence levels of high-income households (earning more than R20 000 per month) deteriorated the most during the first quarter, crashing from -10 to -31 index points.
Affluent consumers are especially concerned about the outlook for the economy, with this sub-index nosediving from -18 to a new historic low of -51 in the first quarter.
The confidence levels of middle-income households (earning between R5 000 and R20 000 per month) dropped from -6 to -21, while low-income confidence (earning less than R5 000 per month) slumped from -6 to -17 index points.
Meanwhile, the Absa Manufacturing Survey, also released yesterday, showed that confidence levels in the manufacturing sector dropped 9 points to 17 in the first quarter of 2023.
The quarterly survey by BER, which covers approximately 700 businesspeople in the manufacturing sector, revealed that confidence levels were impacted by load shedding.
“Manufacturers are feeling pessimistic as load shedding, especially at higher levels such as stage 6, continues to have a significant impact on their businesses,” said Justin Schmidt, head of manufacturing sector at Absa Relationship Banking.
“Current confidence levels are similar to those seen during the global financial crisis and are the lowest since the Covid-19 hard lockdown.”
Schmidt said although many manufacturers had implemented measures to become resilient to load shedding, once stage 4 is exceeded, heavy manufacturers may be asked to curtail their production in an attempt to stabilise the national grid.
He said pessimism continued to surround forward-looking expectations as the majority of manufacturers expected that business conditions would deteriorate even further over the next 12 months, with both import and export volumes expected to decline.
“We’re seeing that manufacturers’ investments are currently focused on surviving load shedding in the form of transitioning to renewable energy, while investments into additions or expansions have been put on hold until manufacturers see a shift in the operating conditions,” Schmidt said.
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