SA consumer confidence plunged to its lowest level in about a year in the first quarter of 2023, the FNB/Bureau for Economic Research (BER) survey showed on Thursday.
The figures show the effect of the deepening power and cost-of-living crises on the economy, and raise questions as to whether the Reserve Bank has scope to hike interest rates further in this scenario.
The FNB/BER consumer confidence index (CCI) plunged to -23, the lowest point since the second quarter of 2022, when floods hit KwaZulu-Natal and the world was coming to terms with the economic effects of the invasion of Ukraine.
The reading of -23 is the third lowest CCI reading on record since 1994 and illustrates consumer concern about their household finances and SA’s economic prospects.
The sobering figures come a week before the Bank’s monetary policy committee meeting at which it is widely expected to hike interest rates by 25 basis points, pushing the repurchase rate to 7.50%.
“These are forward looking indicators telling you that the economic prospects could be deteriorating. Both consumers and businesses have been struggling with confidence for the long time. The power crises no doubt play a big part in these numbers, but it’s just one of the many factors,” said Kevin Lings, economist at Stanlib Asset Management.
“With the economy fast losing momentum, the Reserve Bank could pause in its hiking cycle after a 25 basis point hike next week. While inflation appears sticky, it is still moving in the right direction and interest rates are already in the restrictive territory.”
Most consumers expect growth to deteriorate over the next 12 months, and consider it highly inappropriate to purchase durable goods such as cars or furniture at present.
Consumers are under pressure from elevated inflation and interest rates. The ratio of household debt to disposable income hovers at about 62.8%, according to the Reserve Bank data.
“The alarming increase in power outages since December and the concomitant deterioration in SA’s economic prospects no doubt rocked consumer sentiment during the first quarter,” FNB chief economist Mamello Matikinca-Ngwenya said in a statement.
“Spiralling food prices, another interest rate hike and a sharp depreciation in the rand exchange rate [probably] added insult to injury. However, further job creation in the still-recovering services sector may have softened the blow to low- and middle-income confidence.”
The breakdown of the CCI shows that the confidence levels of high-income households — those earning more than R20,000 a month — deteriorated the most during the first quarter, crashing from -10 to -31 index points.
Affluent consumers were especially concerned about the economic outlook, with the subindex nosediving from -18 to a new historic low of -51 .
The confidence levels of middle-income households — earning R5,000 to R20,000 a month — fell from -6 to -21. The low-income confidence (earning less than R5,000 a month) slumped from -6 to -17 index points.
With an increasing number of high-income households now investing in solar power and other backup power systems, these households will probably need to slash their discretionary spending to balance their budgets, the survey found.
So sales volumes of big-ticket durable goods items such as new vehicles, furniture and household appliances are likely to be under pressure in coming months.
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