Consumer confidence increases again, but no great outlook for 2023

Consumer confidence increased again for the third quarter after plunging to -25 index points during the second quarter. The surprisingly strong rebound to -8 index points for the fourth quarter from -20 brings consumer confidence more or less in line with the same quarter in 2021.

According to the FNB/BER Consumer Confidence Index (CCI), the latest reading is in line with the level attained during the fourth quarter of last year when it was -9, as well as the fourth quarter of 2019 when it was -7, just before the COVID-19 pandemic struck.

Although a reading of -8 still signifies depressed consumer sentiment, the scope of the rebound, relative to the third quarter, comes as a surprise given sustained high inflation, frequent load shedding, successive large interest rate hikes and the worsening global economic backdrop.

The index shows that all three subindices rebounded smartly, with the economic outlook improving by 12 index points and the time-to-buy durable goods subindices by 11 index points, although this is still deep in negative territory.

ALSO READ: Consumer confidence remains depressed as middle and high earners cut spending

Not much hope for economic prospects in consumer confidence

It is clear that the majority of consumers therefore still expect that the country’s economic prospects will deteriorate over the next 12 months and consider the present time as inappropriate to buy durable goods, such as vehicles, furniture, household appliances and electronic goods.

The household financial outlook sub-index jumped 15 index points to reach +13 during the fourth quarter, similar to the reading of +14 reached during the 2021 festive season. The majority of households expect an improvement in their household finances over the next 12 months, despite being quite pessimistic about the outlook for the national economy.

Another big jump happened in the confidence levels of high-income households (those that earn more than R20 000 per month) which increased from -27 to -10 index points during the fourth quarter, while the confidence of middle-income households (those that earn between R2 500 and R20 000 per month) improved from -19 to -6.

Only the confidence of low-income households (those that earn less than R2 500 per month) declined, from -3 to -6 index points, bringing it in line with middle-income confidence. However, low-income households remain the most optimistic about the outlook for their household finances (+20), but middle- (+16) and high-income households (+8) now also expect an improvement in their household finances over the next 12 months.

This is largely due to a marked improvement (and positive expectations) among black households, as white households became even more concerned about their financial prospects during the fourth quarter. Young people between the ages of 16 and 34 have also become much more optimistic about their financial prospects compared to the older generation.

This improvement points to increased job creation in this age group where unemployment is sky-high. However, since the older generation typically has greater spending power, negative consumer sentiment in this group tempers expectations for consumer spending growth over the festive season.

ALSO READ: Consumer confidence deteriorates dramatically as economic outlook sours

Index show resilience of consumers

“An uptick in employment growth, particularly in the now fast-recovering services sector and substantially lower petrol prices since the third quarter, no doubt bolstered consumer sentiment in the runup to the festive season, but, given the backdrop of sustained high inflation, rapidly rising interest rates, frequent load-shedding and the generally bleak outlook for global economic growth, the 12-point rebound in consumer confidence surprised on the upside, pointing to a level of resilience among consumers,” says Mamello Matikinca-Ngwenya, chief economist at FNB.

The recovery in consumer confidence stands in contrast to the BER’s Retail Survey results, which show a marked decline in retailer confidence and sales volumes during the fourth quarter of 2022 although the BER’s services survey shows a very smart uptick in confidence, business activity and employment levels, particularly in the restaurants & hotels and transport services categories.

“The rebound in consumer sentiment shows an improved willingness to spend among consumers relative to the second and third quarters of 2022, but consumers’ ability to spend real disposable income and their access to credit would also need to improve to translate into a significant increase in household consumption,” Matikinca-Ngwenya says.

Further sharp interest rate hikes and sustained high food inflation would have muted some of the positive impacts of higher employment growth and lower fuel prices during the fourth quarter.

“However, the significant improvement in consumer sentiment is positive news for the economy and suggests that household consumption expenditure is holding up, or even expanding slightly, despite difficult economic conditions.

But this time around it seems likely that the services sector, particularly restaurants, transport, recreation and tourism related services, will be the main beneficiary, with the retail sector expected to underperform relative to the 2021 festive season.”

ALSO READ: Ukraine war sets 2022 consumer confidence off on a bad start

This will be a meaningful improvement

Economic research group Oxford Economics Africa says although the latest rebound in sentiment indicates consumers’ tentative willingness to spend relative to earlier quarters in 2022, household consumption will only meaningfully improve once cost pressures abate.

An improved index might also reflect a change in sentiment following the initial shock of Russia’s invasion of Ukraine in February 2022, followed by devastating flooding in KwaZulu-Natal during April.

However, the group warns that consumers are in for a tough 2023 as evaluated prices imply that inflation will remain sticky at 6.0% in 2023, with a further 50-bps rate hike pencilled in for the first quarter of 2023.

“Moreover, the risk of load shedding remains high and will continue to undermine the economy, while recent political uncertainty would have left many anxious,” the group says.