Alarming decline in consumer confidence shows South Africans are battling

The alarming decline in consumer confidence in the first quarter of the year shows how consumers are battling with the electricity crisis and cost-of-living concerns.

The confidence of high-income households deteriorated the most, almost reaching the lowest level ever of the second quarter of 2020.

After the FNB/BER Consumer Confidence Index (CCI) recovered from -20 to -8 index points during the fourth quarter of 2022, it plunged to -23 index points.

A reading broadly in line with the extraordinarily weak consumer confidence level recorded in the third quarter of 2020 (-23) during a time of level 3 Covid restrictions, alcohol bans, school closures and curfews, as well as the second quarter of 2022 (-25), when deadly floods devastated KwaZulu-Natal and the economic ramifications of the Ukrainian war started to show.

The reading of -23 is the third lowest CCI reading on record since 1994 and indicates extreme concern among consumers about South Africa’s economic prospects and their household finances.

All three sub-indices of the CCI declined dramatically during the first quarter, with the economic outlook decreasing by 15 index points and the time-to-buy durable goods by 17 index points to reach -34, deep in negative territory.

This shows that the vast majority of consumers expect South Africa’s economic growth to deteriorate over the next 12 months and they consider the present time as highly inappropriate to purchase durable goods, such as vehicles, furniture, household appliances and electronic goods.

The household financial outlook sub-index decreased by 14 index points to -1, reversing the gains of the 2022 festive season. However, while consumers no longer expect their household finances to improve over the next year, they are considerably less pessimistic about their own financial prospects compared to their gloomy expectations for the economy in general.

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Consumer confidence of the 3 household groups

The confidence levels of high-income households that earn more than R20 000 per month deteriorated the most, crashing from -10 to -31 index points.

Apart from the reading of -33 recorded during the initial panicked level 5 lockdown period in 2020, this is the lowest reading for high-income confidence since the commencement of the series in 1995. It is clear that affluent consumers are especially concerned about the outlook for the economy, with this sub-index nosediving from -18 to a new historic low of -51 in the first quarter.

The confidence levels of middle-income households that earn between R5 000 and R20 000 per month declined from -6 to -21, while the confidence of low-income households that earn less than R5 000 per month slumped from -6 to -17 index points.

“The alarming increase in power outages since December and the concomitant deterioration in South Africa’s economic prospects no doubt rocked consumer sentiment during the first quarter. Spiralling food prices, another interest rate hike and a sharp depreciation in the rand exchange rate likely 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,” Mamello Matikinca-Ngwenya, chief economist at FNB says.

The large decrease in consumer confidence Index mirrors the substantial deterioration in retailer sentiment during the first quarter that decreased from 42 to 34 index points, the weakest level since the second quarter of 2020.

“The about-turn in consumer confidence points to a marked decline in consumers’ willingness to spend and foreshadows a significant slowdown in real consumer spending growth relative to the surprisingly strong rate recorded during the fourth quarter.

“The fact that high-income confidence declined the most is doubly alarming for the outlook for household expenditure, as affluent consumers also have the greatest spending power,” Matikinca-Ngwenya says.

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Keeping money you have for solar power

An increasing number of high-income households are now investing in solar power and other backup power systems at considerable cost and will in all likelihood need to slash their discretionary spending to afford it.

Consequently, sales volumes of big-ticket durable goods items, such as new vehicles, furniture and household appliances, will likely be under increased pressure in coming months, although replacement purchases of electronic goods due to load shedding related breakdowns should counter some of the adverse impact, Matikinca-Ngwenya says.

With some recovery momentum still buffering the services sector, such as hotels, restaurants, transport, recreation and tourism-related services, the retail sector will likely bear the brunt of the impact of the confidence collapse.

The FNB/BER CCI combines the results of three questions posed to adults in South Africa, namely the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods.

A low level of confidence indicates that consumers are concerned about the future and may be worried about job security, pay increases and bonuses. In this frame of mind, consumers tend to cut spending to basic necessities to free up income for debt repayment.

If confidence is high, on the other hand, consumers tend to incur debt or reduce savings and increase spending on discretionary items, such as furniture, household equipment, motor vehicles, clothing and footwear. Some of these items are often financed on credit. Spending on these items declines when confidence is low, as households can generally delay their purchase without experiencing an immediate deterioration in living conditions.