Consumers in South Africa are expected to continue holding back on making large purchases in the next 12 months as high borrowing costs has resulted in pessimism about the prevailing economic conditions.
The FNB/BER Consumer Confidence Index (CCI) plunged to its lowest in one year in the second quarter of 2023, sagging further to -25 points after having plummeted from -8 to -23 index points during the first quarter.
This CCI reading was the second-lowest reading on record since 1994 after a low of -36 index points recorded during the hard Covid-19 lockdown in the second quarter of 2020.
It was also indicative of concerns about South Africa’s economic prospects and consumers’ household finances.
Consumer confidence has now dropped back to the same low level that was recorded during the second quarter of 2022 when the economic ramifications of the Ukrainian war became clear.
FNB said the economic outlook sub-index and the time-to-buy durable goods index were now deeply negative, after dropping by 3 index points to -37 and by a further point to -35, respectively.
This suggested that the vast majority of consumers expected a deterioration in South Africa’s economic growth over the next 12 months and consider the present time as highly inappropriate to purchase durable goods.
High-income households were the most pessimistic of all income groups about the appropriateness of the present time to buy durable goods as their confidence deteriorated the most, falling from -31 to a new historic low of -40.
FNB said affluent consumers were not only highly alarmed about the outlook for South Africa’s economy, but they now also feared that their household finances will worsen over the next 12 months.
The confidence levels of middle-income households weakened slightly from -21 to -22, while low-income confidence edged up marginally from -17 to -16 index points.
High-income confidence levels are now far lower compared to low- and middle-income confidence, and even below the extraordinarily depressed levels attained during the height of the Covid-19 pandemic.
This does not bode well for the retail sector as affluent consumers have the greatest spending power among the different income groups, and could result in deterioration of sales volumes of expensive durable goods such as new vehicles, jewellery, furniture and household appliances.
FNB chief economist Mamello Matikinca-Ngwenya said further interest rate hikes, rand depreciation and concerns about South Africa’s diplomatic relations with the rest of the world in all likelihood compounded the negative impact of the electricity crisis on high-income confidence.
Matikinca-Ngwenya said affluent consumers were more likely to have invested in alternative electricity sources such as solar or battery power, and were also more inclined to have debt that was tied to the soaring prime interest rate.
“With the prime interest rate having increased by 475 basis points over the last two years, debt servicing costs are really starting to bite,” Matikinca-Ngwenya said.
“Load shedding and sustained high food inflation are likely of primary concern to low- and middle-income households, but sharply lower paraffin prices and the extension of the jobs recovery in the services sector may be cushioning the impact on less affluent consumers.”
Investec chief economist Annabel Bishop also said the sharp fall-off in high income earners confidence was negative for household consumption expenditure, and so economic growth.
Household consumption expenditure accounts for two-thirds of gross domestic product (GDP) and high-income earners account for a substantial portion of that, particularly discretionary spending.
Bishop said the state absorbing and managing all healthcare under the National Health insurance (NHI) will not spur confidence to lift tourism or for high income earners to stay in South Africa.
“Without high income earners, the monies the NHI is seeking to access will dry up, and tax revenues fall severely,” Bishop said.
“Repairing public healthcare instead should be the focus first, particularly management and service delivery, not broad based implementation of the NHI.”