Consumer confidence up off a record low
Consumers have few reasons to be confident about the economy, but they’re more optimistic in the third quarter of this year than in the previous quarter. That’s no comfort though, because consumer confidence was obliterated during the second quarter.
The latest FNB/BER Consumer Confidence Index (CCI), released last week, showed that consumer confidence had risen to -23 in the third quarter as economic restrictions eased, the bank said in a statement. This was a bounce-back from -33, a record 35-year low, during the second quarter, when the country was in the grip of level 5 restrictions, the bank said.
The CCI measures household confidence in the economy and sentiment regarding financial prospects.
The CCI numbers came a day before the gross domestic product (GDP) data, which indicated a 51% decrease quarter on quarter. If the economy continues along this path, it is likely to average a 10% loss for this year. On Wednesday, the RMB/BER Business Confidence Index was released, showing a material rebound in the third quarter, to 24 from an all-time low of 5 in the second quarter.
The partial improvement in the index was ascribed to increases in the household finances and “time to buy durable goods” sub-indices.
The household financial outlook sub-index, which reflects consumers’ views of their financial outlook over the next year, rose from -13 to -2, but remained well below the first-quarter reading of +14. The “time to buy durable goods” sub-index, which reflects attitudes about the appropriateness of buying durable goods such as cars, appliances or furniture, improved from -64 in the second quarter to -44 in the third quarter. The latest reading is still “deeply depressed” and slightly below the previous record low of -42 for this sub-index, reached in 1984, FNB said.
Chief economist Mamello Matikinca-Ngwenya said lifting restrictions to level 2 allowed people to return to work. “Low-income consumers who were largely unable to work from home would have been particularly relieved by this development.”
Investec economist Lara Hodes says the numbers are no surprise. “Consumer confidence remains very depressed. And more consumers in the third quarter than in the second quarter expect South Africa’s economic prospects to deteriorate over the next 12 months.”
Hodes says electricity supply problems, persistent policy uncertainty and the slow implementation of crucial reforms continue to weigh on business and consumer confidence, inhibiting growth. “We anticipate a -10.1% year-on-year contraction in GDP for this year.”
FNB senior economist Siphamandla Mkhwanazi says interest rates are significantly lower than in the previous survey, which reduced the cost of credit and aided the indebted, while social grant disbursements saved low-income households, but the outcome remains “highly pessimistic”.
“Unemployment is our biggest worry; we haven’t seen the worst yet. This is bound to have a negative impact on consumer spending,” Mkhwanazi said. “We are optimistic about infrastructure projects, though, so there are green shoots. Such projects tend to have high multipliers, with positive spill-overs to other sectors. They absorb semi- and low- skilled labour, which we have in abundance.”
Consumers who have been trying to pay off debt and hold on to savings, are now starting to improve their living spaces but that will not last, he believes, because it is a once-off expenditure. Professor Philippe Burger, pro-vice-chancellor and a macro economist from Free State University, says that confidence was so low a rebound was inevitable. He is also concerned about unemployment.
“During the 2009 global economic crisis, South Africa lost about 800 000 jobs, with an economy that contracted around 3.5%. This time around, we expect a contraction up to three times that size. We could still lose up to three million jobs,” Burger said.
That crisis caused a lasting bump in unemployment figures, to 21%. Downgraded to junk status before the crisis, Covid-19 is likely to push unemployment from 27% towards 40%, possibly permanently.
“Once companies lay people off, it’s uncertain to what extent they will re-employ again.”
Burger said the government’s finances were in poor shape going into the crisis. “The electricity crisis is enormous: we simply can’t grow the economy by more than 1.5% because of it, so we will keep deteriorating in a per capita sense. Skilled people are emigrating. The skills base is shrinking, and so is the tax base.”
Tax increases are inevitable.
Steven Nathan, founder of 10X Investments, says that, on the upside, in the second quarter R144 billion flowed into money market funds: “There was money in the economy: GDP, tax collection and remuneration contracted, but people were able to save into savings products. They are not spending.”
In times of uncertainty, consumers become more prudent. Nathan says the world has had a big wake-up call. “People have realised their savings could be wiped out. We’ve been forced to change our mindset, from consumption-driven to being more prudent and frugal, across society, and being much more conservative with money.”