SA’s consumer confidence plummeted to a two-year low in the first quarter of 2025, one of the steepest declines in recent history, as households grow increasingly concerned about the local economy.
Consumer sentiment slumped to minus 20 index points from minus 6 in the preceding three months, according to the FNB/Bureau for Economic Research (BER) consumer confidence index and was probably triggered by the threat of higher taxes and “discord” among partners in the government of national unity, FNB and the BER said in a statement.
The data was gathered just days after finance minister Enoch Godongwana’s rejected proposal to hike VAT by two percentage points, FNB and the BER said.
“The boost from two-pot retirement fund withdrawals will be significantly less during 2025 compared to the roughly R40bn paid out in 2024, while Trump-triggered trade wars and rising global uncertainty are reducing the likelihood of further interest rate cuts,” said FNB chief economist Mamello Matikinca-Ngwenya.
She said the withdrawal of US aid to SA and the rapid deterioration in diplomatic relations between the two countries would also have knocked consumer confidence, though the biggest blow to sentiment probably emanated from the National Treasury’s first tax proposals.
Though the second budget presented on March 12 softened the VAT hike, it still proposes a one percentage point increase over two years and omits inflation adjustments to personal income tax brackets and medical aid credits for the second consecutive year.
Though smaller, the hike “still places a significant tax burden on consumers, which would have weighed on sentiment too”, FNB and the BER said.
“Above-inflation increases to social grants and the expansion of the zero-rated VAT basket should partially shield low-income households but, if implemented, these tax proposals will deal a significant blow to the financial positions of high-income households,” Matikinca-Ngwenya said.
The deterioration in consumer sentiment was broad-based. The economic outlook subindex plunged to minus 32 from minus 9, almost wiping out gains made after the formation of the GNU and earlier improvements in electricity supply.
The household finances subindex dropped to minus 1 from 11 and the durable goods subindex, which gauges consumers’ views on buying big-ticket items, declined to minus 28 from minus 21.
“This kind of sharp retreat echoes the dramatic drop in confidence during the onset of stage 6 load-shedding in early 2023,” FNB and the BER said.
“This time, a brief return of stage 6 in the first quarter and the souring of SA-US relations likely contributed to the toxic mix of pressures.”
After a surge in retail sales over the festive season, the outlook for household expenditure has deteriorated notably.
Sentiment declined across all income groups, though the biggest drop was among high-income households (those earning more than R20,000 a month) to minus 30 index points from minus 4.
“The vast majority of high-income households now expect SA’s economic performance and their own household finances to deteriorate over the next 12 months — a complete turnabout from their expectations just three months ago,” FNB and the BER said.
Confidence among middle-income households (those earning from R5,000-R20,000 a month) declined from minus 7 to minus 19, while that for low-income households (below R5,000 a month) fell to to minus 17 from minus 7.
Jee-A van der Linde said the sharp decline was a concern. “With private sector investment still muted and without any prospects of increasing meaningfully this year, gloomy consumer sentiment presents growing downside risks to our baseline real GDP growth forecast of 1.5% in 2025,” he said.
Investec chief economist Annabel Bishop said electricity outages are broader than just load-shedding, “encompassing load reduction, where large industrial users are requested to shut off production for certain periods to conserve the grid.”
“We continue to expect GDP growth will reach 3.0% year on year by 2029, but that economic growth will not be strong this year, and the progression to 3.0% year on year steady but slow.”
Johann Els, chief economist at Old Mutual, is not convinced the drop in consumer confidence signals the beginning of a sustained downturn.
“Yes, the consumer confidence numbers plummeted, but I wouldn’t read too much into that because it came just after the initial budget proposal suggesting a 2% increase in VAT,” he said.
“I view this number as perhaps an aberration. I don’t think it will necessarily continue at these low levels or continue to fall — I think we’ll see some recovery.”
By the next survey, “likely in mid to late May, we should have seen further easing in inflation,” he said, adding that a relatively stable rand and a significant petrol price cut — with prospects for another in May — could help buoy consumer sentiment.
“So I still believe that this number in the first quarter doesn’t mean the start of a new trend.”
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