We’ve looked at the latest consumer confidence numbers with some nervousness, given the significance of household consumption expenditure on overall GDP. By the Bureau for Economic Research (BER) measure, households remain significantly cautious in the current climate, reluctant to commit to large purchases and showing general pessimism about economic prospects.
Yet in contrast to negative consumer sentiments, household final consumption expenditure (HFCE) has remained positive in the latest GDP report release, up 3.2% on a year-on-year basis in Q3 2025 and at an average of 3.1% for the year to date, vs just 1% year-on-year in 2024. Households spent more on all categories of goods but showed the strongest growth in durable goods purchases such as cars, furniture and appliances. Expenditure on durable goods grew by 9% year-on-year in the quarter.
There are several factors contributing to the improvement of household balance sheets as we enter the festive season. First, consumer inflation has declined to an average of 3.1% this year, the lowest it has been in the past five years. Consumers have also benefited from a lower interest rate environment than was the case a year ago, with the prime rate now at 10.25%, 100 basis points lower than in November 2024. This is certainly providing some level of reprieve and allowing consumers to fulfil needs that may have been postponed to a better time.
There is another factor currently playing in favour of consumers. While consumer inflation remains within the new target range, durable goods such as furniture and appliances have actually deflated (declined in price) over recent months, easing affordability, while the arrival of vehicles manufactured in China has boosted volumes in vehicle sales due to their increased affordability. Still, none of the good news has created the consumer confidence that South Africa has seen in the past.
Outside of large ticket items, improvements in grocery store sales, accounting for food and other essentials, have only been marginal at just 2% year-on-year in Q3 2025, according to Stats SA’s retail sales report. Sales of clothing, shoes and textiles have been stronger, but have also benefited from lowered prices or very marginal price increases.
Lower inflation and even lower prices for some goods have slowed the growth in consumer credit, significant for a highly indebted country.
While retailers have reduced profit margins to accommodate tighter household budgets, the result has been lower profits, if not losses, reported by these businesses during 2025, indicative of a stagnant business environment less able to create investable profits or new jobs. Another weight on consumer confidence.
On the upside, lower inflation and even lower prices for some goods have slowed the growth in consumer credit, significant for a highly indebted country. For example, while new vehicle sales increased by 15.4% year-on-year to end November, credit on instalment sales grew by a more marginal 6.7%. Growth in credit card debt has slowed during 2025, while overdraft debt has declined, both suggesting reduced financial stress in households.
Unfortunately this silver lining might not immediately change consumer sentiment – and sentiment matters. This is most evident in the trend in mortgage advances, which has grown by just 2% year-on-year on a year-to-date basis, reflecting the reluctance of consumers to enter into long-term credit commitments. This compares to the last peak of 7% year-on-year for 2022 (which was bolstered by a lower interest rate environment and pent-up demand from inactivity during the Covid-19 lockdown), and a longer-term average of 4.4% (2015-2024). Residential property values are growing slowly, affecting household wealth. And, unfortunately, continuously weak consumer confidence will perpetuate this trend.
It is not a rise in prices that will restore consumer confidence, but rather a sense that one can afford higher quality. Prices and the cost of living send a signal of how things are going in the country and create the context under which households will make both long- and short-term decisions.
From climate to politics, there is no doubt that we are in a period of great uncertainty. As we prepare to enter 2026, hope for the future of the country and its economy will depend on the commitments that have been made to improve that which can be controlled:
- sound fiscal policy;
- predictable monetary policy;
- improved security and rule of law; and
- constructive collaboration between the public and private sectors.
With a removal from the Financial Action Task Force’s greylist, a successful G20 summit and the wins of Operation Vulindlela, the foundations are there.
• Makhoba is an economist and lead specialist of research and analytics at Liberty, the insurance and asset management arm of Standard Bank.
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