Consumers facing a gloomy Christmas as economy limps
• Job losses, power cuts and high inflation and interest rates hit spending
Consumers are feeling the gloomiest about their finances in more than two decades and are not in the mood to splurge this festive season, spelling trouble for retailers and the economy on the brink of technical recession.
The consumer confidence index, a measure of how optimistic or pessimistic consumers are about the future economic situation and their own financial prospects, slipped to minus 17 index points in the fourth quarter, a survey by the Bureau for Economic Research (BER) in partnership with FNB showed on Thursday.
This is the lowest festiveseason consumer confidence reading in more than two decades.
A negative reading means consumers are likely to save more and spend less, boding ill for the economy, which shrank in the third quarter, as consumer spending accounts for almost 70% of GDP.
The lower confidence reading stems largely from consumers’ negative perceptions about the outlook for the national economy, which is being hobbled by muted external and internal demand, as well as chronic power shortages and logistics crises. These factors have also pushed up inflation and interest rates, eroding consumers’ purchasing power and disposable income.
For consumers, the fallout may also be felt through job losses as businesses, big and small alike, launch punishing cost-cutting programmes.
The outcome of the survey could also have soured sentiment in retailers’ boardrooms. Retailers might be forced to offer marked-down prices to lure cash-strapped consumers during what is traditionally a peak period for sales.
“The low festive-season consumer confidence reading signals that consumers are not in a jolly, high-spending mood,” FNB chief economist Mamello Matikinca-Ngwenya said in a statement. “Sales of big-ticket discretionary goods, and especially interest-rate sensitive goods, will likely underperform relative to previous holiday shopping periods.”
The economic outlook subindex of the survey slipped back to minus 28 index points in the fourth quarter, from minus 22 index points in the preceding quarter.
Confidence levels among middle- to high-income households declined slightly while those in the lower income bracket — earning less than R5,000 per month — edged up.
Matikinca-Ngwenya said that sustained strong job growth heading into the holiday season, especially in the tourism sector, may have countered the adverse effect of cost-of-living pressures on low-income households in general.
“The announcement that the social relief of distress (SRD) grant will be extended through March 2025 probably also buoyed the confidence of the 8.6-million SRD grant recipients,” she said.
“However, high interest rates and a marked deterioration in SA’s fiscal position are likely worrying high- and middleincome consumers.” The household financial outlook subindex of the survey improved further, from minus 1 to +3, while the index measuring the appropriateness of the present time to buy durable goods edged up by one index point to minus 25.
“The prolonged period of higher interest rates has negatively affected consumers, and consumers are expected to be judicious on their spending over the festive season as a consequence”, said Investec chief economist Annabel Bishop.
However, indebted consumers could get a reprieve in 2024, depending on the inflation trajectory.
The Reserve Bank expects average inflation to sustainably return to the 4.5% midpoint of the target band by 2025. Barring internal-external shocks, economists expect the central bank to cut rates from next year.
The repurchase rate now stands at 8.25%, the highest in 14 years. Bank governor Lesetja Kganyago has said that the present lending rate remains in “restrictive territory”.
The FNB-BER survey came two days after the release of the GDP data, which showed that the economy contracted in the July-September quarter, raising the risk of a technical recession.