Bleak South African economic outlook moving deeper into negative territory
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THE ECONOMIC outlook has become bleaker for low-income households in South Africa, pushing the Consumer Confidence Index (CCI) deeper into negative territory in the three months to June after a slight recovery.
Data from the Bureau for Economic Research (BER), sponsored by FNB, yesterday revealed a worrying picture of the CCI.
The CCI back-pedalled to -13 index points in the second quarter of 2021 after recovering further from -12 to -9 index points during the first quarter of 2021.
FNB said this latest reading remained well below the average CCI reading of +2 index points since 1994, denoting very depressed consumer confidence levels.
However, the CCI was less negative compared to the extraordinarily pessimistic readings of -33 and -23 index points recorded when severe restrictions were implemented last year.
FNB said the overall decline could be ascribed to a deterioration in the economic outlook and the time to buy durable goods such as vehicles, furniture, and household appliances.
BER said that the sentiment among households earning less than R2 500 per month plunged from zero to -22 index points during the second quarter, marginally below last year’s level of -20 points.
It said low-income households were also dealt a blow as inflation surged to more than a 30-month high in May, making goods less affordable. In contrast, high- and particularly middle-income confidence levels saw far smaller declines as it slipped from -15 to -18 points during the second quarter.
FNB chief economist Mamello Matikinca-Ngwenya said low-income households turned very pessimistic about the outlook for the economy in the second quarter.
Matikinca-Ngwenya said these households no longer expect their finances to improve over the next year; and now consider the present time as highly inappropriate to purchase durable goods.
She said a string of negative developments had knocked the confidence levels of less affluent consumers, including soaring food and fuel prices, the onset of a third wave of Covid-19 infections and the feeble recovery in low-skilled employment.
“However, the expiration of the substantial social grant top-ups implemented in 2020, as well as the Social Relief of Distress (SRD) grant and the TERS programme, arguably dealt the largest blow to the spending power and confidence levels of low-income consumers,” she said.
The social grant top-ups and the SRD grant boosted the disposable income of vulnerable households by about R7 billion per month.
Matikinca-Ngwenya said the expiration of these grants had left a gaping hole in low-income budgets.
She said the prospects for low-income consumers and non-durable goods retailers were very much tied to job creation in the absence of further expansionary welfare spending by the government.
“The decline in consumer confidence during the second quarter of 2021 points to a lower willingness to spend among consumers and will likely translate into slower growth in overall consumer spending compared to the impressive first quarter growth rate,” she said.
Anchor Capital said the decline in the overall index showed that low-income households had little faith about their income prospects.
The group’s chief investment analyst Casey Delport said lower income households no longer expected their improve over the next year.
“In contrast, high- and particularly middle-income confidence levels saw far smaller declines during the second quarter, and affluent consumers are now much less pessimistic compared to low-income households,” Delport said.
“Most high-income consumers expect the financial position of their household to be unchanged over the next 12 months.”