File picture: Denis Farrell

Johannesburg - Local consumers are displaying sentimental feelings about domestic economic growth prospects and believe their personal finances will improve over the next 12 months, according to the FNB and Bureau for Economic Research (BER) consumer confidence index (CCI), released yesterday.

Consumer confidence rebounded to 4 index points during the second quarter from minus 6 index points in the first three months of the year. It is the highest reading since the third quarter of 2011, but still slightly below the long-term average reading since 1994 of 5 index points.

FNB chief economist Sizwe Nxedlana said the rebound, which was not sustainable, could have been from the success of major events such as the general elections in the second quarter.

“A similar thing happened during the 2010 World Cup, but it did not last. I also believed that this rebound would not be sustainable because there might have been an over-reaction as a result of major events,” he said.

Other factors that made consumers more optimistic included an appreciation in the rand-dollar exchange rate, the 37c a litre decline in the petrol price between April and last month and the unchanged level of interest rates since a January hike.

He added that consumers’ ratings of their own financial prospects improved significantly during the second quarter, with high-income consumers particularly expecting their household finances to look up over the next 21 months.

The jump in the CCI mirrors the increase in the BER’s retailer confidence index during the second quarter and also reinforces the view that the slowdown in household spending has not been as dramatic as expected considering the recent deterioration in economic growth.

Nxedlana said that, should the economy and household financial positions fail to improve in line with consumers’ relatively more optimistic expectations, the rebound might well turn out to be an overshoot. In order for the rise in consumer confidence levels to translate into faster growth in household consumption expenditure, there needed to be a sustained recovery in real disposable income growth and household credit extension.

“The uptick in the CCI suggests an increased willingness to spend, particularly among high-income consumers. However, consumers’ ability to spend, as determined by their disposable income and access to credit, also needs to improve for the rise in confidence levels to translate into a meaningful acceleration in household consumption expenditure.”

The index also showed that consumers were still postponing the time to buy durable goods, with a decline of 10 index points in this sub-index.

Annabel Bishop, the chief economist at Investec, said even retailers’ confidence slightly improved in the second quarter, “no doubt in anticipation of higher retail sales now that the prolonged strike in the platinum sector has ended”.

She, however, pointed out that sharply escalating state-controlled prices of electricity, property rates and taxes would contribute to a decline in consumer spending.

“We continue to believe the economy will battle to record growth of above 2 percent year on year in 2014, as work stoppages due to electricity constraints and strikes in other sectors impede activity,” Bishop said.