CONSUMERS in South Africa are expected to remain optimistic that slowing inflation will gradually taper down higher interest rates and improve conditions following a strong rebound in the economic outlook and an improvement in the time-to-buy durable goods in the third quarter of 2023.
This comes after the FNB/BER Consumer Confidence Index (CCI) increased to -16 points in the third quarter of 2023, from -25 points in the previous period, which was the lowest reading in a year.
Despite the 9-index point rebound in the third quarter, the latest reading of -16 remains firmly in the depressed territory and well below the long-run average CCI reading of zero since 1994, signalling a low willingness to spend among consumers.
FNB yesterday said that an improved economic outlook and shorter time-to-buy for durable goods boosted households' willingness to spend.
In particular, there was a "remarkable" recovery in the confidence of high-income households, those earning more than R20 000 per month, after it plunged to a low in the last quarter.
Spooked by a dramatic escalation in load shedding, a sharp depreciation in the rand exchange rate, successive interest rate hikes and the diplomatic fallout following the docking of a Russian ship in Simon’s Town, FNB said that affluent consumers became particularly alarmed about South Africa’s economic prospects.
High-income confidence plunged to a low of -40 in the second quarter of 2023, but rebounded to -17 in the third quarter.
The confidence levels of middle-income households, those earning between R5 000 and R20 000 per month, also improved, from -22 to -15, during the third quarter.
Low-income confidence of those earning less than R5 000 per month remained unchanged at -16 index points.
FNB chief economist Mamello Matikinca-Ngwenya said the overall positive developments seemed to outweigh the impacts of confidence-sapping events such as the torching of multiple trucks on the N3 transport corridor in July, the damaging week-long taxi strike in the Western Cape during August, and the ongoing municipal worker strike in Tshwane.
Matikinca-Ngwenya said the cooling of consumer inflation rate from 7.1% in March to 4.7% in July fuelled hopes that the South African Reserve Bank has reached the end of its interest rate hiking cycle.
She said that this, combined with a sustained recovery in employment, should bolster the purchasing power of consumers somewhat towards the end of 2023.
“While the financial pulse of the nation remains weak, there appears to be some light at the end of the tunnel for consumers,” she said.
“An unexpected and noticeable easing in load shedding during the survey period, coupled with reduced dependency on Eskom by households that invested in alternative power supply sources, and diminishing concerns around South Africa’s diplomatic relations with the West likely also heartened consumers.”
Although the rebound in consumer confidence was good news in terms of consumers’ willingness to spend, households’ ability to spend probably did not improve to the same extent during the third quarter.
However, a sustained moderation in inflation – especially in food prices – should start to relieve some of the pressure on retail sales volumes from the fourth quarter, with projected interest rate cuts providing greater impetus to consumer spending by mid-2024.
Investec chief economist Annabel Bishop said the moderation of the depressed nature of consumer confidence would be supportive of household consumption expenditure.
“The effect of interest rate hike cycle has been keenly felt by consumers, with a 4.75% rise in total, although interest rates have now remained unchanged since June,” Bishop said.
“Falling inflation has also given rise to hopes of lower interest rates, with the indebted feeling less depressed about the outlook for the economy and their own financial outlook.”
BUSINESS REPORT