Consumers in South Africa are likely to continue hanging onto their disposable cash instead of spending on durable goods in the coming months on the back of rising interest rates and high fuel and food prices.
FNB yesterday warned that consumer sentiment was currently signalling a marked slowdown in consumer spending in coming months.
This as the FNB/BER Consumer Confidence Index (CCI) plunged deeper to -25 points in the second quarter of 2022 having already slipped from -9 to -13 index points during the first quarter.
FNB said the current reading was the lowest in 35 years following the weakest print of -33 points in the second quarter of 2020 when the outbreak of the Covid pandemic and subsequent implementation of level 5 lockdown pummelled sentiment.
FNB said the remarkable collapse of the CCI could be ascribed to a major deterioration in the economic outlook sub-index, from -18 to -39 points, and a complete turnabout in the household financial prospects sub-index, from +8 to -5 points.
The index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods, also edged down, indicating that consumers consider the present as an inappropriate time to purchase durable goods.
FNB chief economist Mamello Matikinca-Ngwenya said that while consumer confidence fell notably across all income groups, high-income confidence had soured more than low-income confidence since the end of 2021.
The confidence level of high-income households, those earning more than R20 000 per month, crashed to -30 in the second quarter.
The vast majority of affluent households are now anticipating a deterioration in their household finances and, in particular, in South Africa’s economic growth rate.
Similarly, Matikinca-Ngwenya said the confidence level of middle-income households slumped from -11 to -23 points, while low-income confidence declined from -6 to -16 index points.
She said that consumer sentiment was now very depressed across all three income groups, dragged down by rising fuel prices, high rate of inflation and rising interest rates.
“The economic ramifications of Russia’s war on the Ukraine dealt hammer blows to consumer confidence around the globe and South Africa is no exception,” she said.
“The non-payment of the R350 per month social relief of distress (SRD) grant to 10.6 million South Africans in April and May in all likelihood also weighed on the confidence levels of many low-income households.
“However, a substantial improvement in job creation in recent months and Sassa’s commitment to resume the SRD grant payments at the end of June - as well as to catch-up all missed payments from July - probably prevented an even more pronounced decline in low-income confidence during the second quarter.”
Although consumer sentiment is widely expected to weaken further given the worsening inflation and interest rate outlook, the extent of the drop in consumer confidence remains alarming.
Investec chief economist Annabel Bishop said wealthy households would also have been negatively impacted by the rise in risk averse sentiment, which saw perceived risky assets, including share prices, drop.
“Consumers are likely cutting back on non-essentials to deal with higher living costs where salary and wage increases fail to match the prevailing inflation rate,” Bishop said.
“Consumers are concerned about high inflation cutting into real disposable incomes, as will higher interest rates.”