SA’s economy is set to reopen further on June 1 as the country moves to a level 3 lockdown, but any hope that consumers will pick up spending where they left off before the coronavirus hit looks sorely misplaced.
The most recent results from an ongoing survey conducted during the Covid-19 lockdown has outlined the hit many households are taking to their incomes, with 60% of participants reporting a decline in earnings — a bad omen for the pace at which SA’s stricken economy will be able to recover.
Household consumption spending accounts for about two-thirds of GDP. But even before most of SA’s working population was confined to their homes for nine weeks, consumer confidence levels were wallowing in deep negative territory, with the most recent FNB consumer confidence index slumping to -9 index points, well below the neutral mark of +2 in the first quarter of the year.
The lockdown has pushed SA consumers into “survival mode” and engendered a new level of frugality they are likely to carry with them as the economy starts reopening, says Alan Todd, research director at market research firm All Told, which conducted the SA Covid-19 survey.
The online tracking survey, conducted weekly for the past eight weeks, covers about 1,500 economically active citizens, in households with a gross income of more than R8,000 a month.
By the sixth week of the lockdown, 60% of respondents reported losing earnings, with 45% describing themselves as “worried”, “very worried” or “panicking” about their financial situation. The lockdown has resulted in households dramatically cutting spending, with 75% of participants reporting that they have cut spending, on average, by R5,976 a month.
Though many people are earning less, they are spending less on everything from petrol to dining out to luxuries and entertainment. The cash that goes unspent is sitting in participants’ current accounts or savings accounts, while 18% reported using it to pay off debt.
There appears to be a “a schizophrenia” between what businesses’ expectations are for the end of the lockdown and what consumers’ expectations are, Todd told Business Day.
“Businesses seem to be of a mind that all we need to do is open up and just get on with it and it will be fine,” he said. But consumers appear to be on a different page — as the majority of respondents have been dogged by fears about losing their earnings and the worry of an economic collapse.
Under these circumstances, the developing mantra among consumers has been “let’s wait and see what happens”, said Todd. “There is definitely a sentiment of being cautious and frugal.”
The survey also suggests the announcement from President Cyril Ramaphosa on Sunday that SA would start reopening the economy under level 3 restrictions could not have come soon enough.
Economic health
During the course of the lockdown, participants have shifted to the view that the economic consequences now outweigh the health considerations of the lockdown.
Half of respondents by week six agreed that economic health was now more important than the health outcomes — a shift from just 26% of respondents in week three.
But even with the move to level 3 — which will allow for most economic activities, except those where virus transmission is likely to be high — the toll on consumers is expected be heavy.
Absa’s macroeconomics research team in a recent quarterly research update revised their growth forecasts for SA down to -9.7%, joining a number of organisations, including the SA Reserve Bank, in steadily slashing growth expectations as the pandemic unfolds.
A big part of the decline in demand in SA’s economy is going to manifest through household spending, Absa said, and it warned that the recovery is likely to be slow. Given the stringent restrictions on retail activity, the bank is expecting household spending to contract in the second and third quarter of 2020.
“Further ahead, the recovery in consumption expenditure is likely to be slow, given likely significant job losses and, in some cases, pay cuts, impairing household labour income,” Absa said.
Absa is forecasting that real disposable income will shrink by 7% in 2020 due to a combination of job losses and further downward pressure on wages.
“The economic contraction is likely to significantly impair household balance sheets, with little to negative asset price growth and higher levels of indebtedness,” it said, which could have a “lasting effect on consumer confidence”.
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