Absa’s latest Merchant Spend Analytics Report for August 2024 reveals a small increase in consumer spending compared with the previous month. Despite the slight uptick, the overall trend remains cautious.
Total consumer spending increased by a modest 1% in August, accompanied by a 3% rise in transaction volumes. However, this represents a slowdown from the stronger growth seen in July. Though this marks two consecutive months of spending growth, it’s not enough to signal a significant economic recovery.
While consumer spending growth of 6% year to date outpaced inflation, it was tempered by sluggish performance in key categories such as food and clothing. These two categories, which once accounted for 69% of the market share, have seen their combined share drop to 59% as of August 2024.
In contrast, categories such as home and garden, and business and professional services — the latter includes fintech solutions — have shown robust growth, driven by factors like increasing adoption of merchant machines by small businesses.
Isana Cordier, head of consumer goods and services sector coverage at Absa CIB, attributes the slower growth in food and clothing to a shift in spending patterns. Consumers are increasingly turning to more affordable options, such as township retail, which are drawing consumers away from traditional channels. Traditional clothing retailers are also increasingly being affected by the rise of fast fashion and international online retailers at the expense of bricks-and-mortar stores.
As online shopping grows, Cordier says the bank is seeing a clear shift in consumer behaviour. However, consumers still value physical shopping experiences.
The report highlights a growing preference for credit cards among consumers, with usage increasing by 10% year to date. Debit card growth, however, has slowed to 4%. There was a modest increase in online spending of 19%, driven primarily by categories such as home and garden, business and professional services, food and clothing.
Looking ahead, the recent introduction of the two-pot retirement system is expected to stimulate household consumption. However, early data suggests a muted impact on consumer spending in September, possibly due to factors such as delayed payouts, tax directives and consumer uncertainty.
While the current situation may seem bleak, Cordier noted that the financial health of consumers has been under strain for a prolonged period. A rebound in consumer spending will likely depend on improvements in economic conditions, including further interest rate cuts, lower inflation and higher employment levels.
The Absa Merchant Spend Analytics Report, issued monthly, leverages Absa’s merchant data, a unique advantage stemming from the bank’s position as Africa’s largest merchant acquirer. Using internal data, it examines patterns and trends, providing a deeper understanding of consumer preferences, behaviours and spending power across various categories, while offering valuable perspectives on broader economic conditions.
The big take-out: A recovery in consumer spending will likely depend on improvements in broader economic conditions.
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