Consumer confidence crisis

35-YEAR LOW: VAST MAJORITY OF AFFLUENT HOUSEHOLDS EXPECT ECONOMY TO DETERIORATE

Complete turnabout in domiciliary financial prospects, from +8 to -5.

Consumer confidence has deteriorated dramatically as the economic outlook sours, signalling a marked slowdown in consumer spending in the coming months, with even high-income consumer confidence decreasing more than low-income confidence since the end of 2021.

After already slipping from -9 to -13 index points during the first quarter of 2022, the FNB/BER Consumer Confidence Index plunged to -25 in the second quarter.

Apart from the index reading of -33 in the second quarter of 2020, when the sudden pandemic and implementation of level 5 lockdown decreased sentiment, the new reading is the lowest in more than three decades.

Official data indicates that growth in real consumer spending remained robust at 3.2% year-on-year during the first quarter of 2022, but this is about to change as consumers will spend less in coming months.

The Bureau for Economic Research (BER) said the remarkable collapse of consumer confidence can be ascribed to a major deterioration in the economic outlook (from -18 to -39) and a complete turnabout in the household financial prospects (from +8 to -5).

The index measuring if it is a good time to buy durable goods, such as vehicles, furniture, household appliances and electronic goods, also decreased, from -28 to -32, indicating that consumers consider it an inappropriate time to buy durable goods.

High-income consumer confidence already slumped from -11 to -18 index points in the first quarter and now the confidence level of high-income households, earning more than R20 000 per month, crashed to -30 in the second quarter, only three index points from the historic low of -33 recorded in the second quarter of 2020.

It is clear that the vast majority of affluent households now anticipate that their household finances and the country’s economic growth rate will deteriorate.

The confidence level of middle-income households, earning between R2 500 and R20 000 per month, also decreased by -11 to -23, while the confidence of low-income consumers, who earn less than R2 500 per month, declined from -6 to -16 index points.

Although consumer sentiment is now very depressed across all three income groups, affluent consumers are considerably more downbeat compared to low-income households, the BER pointed out.

Mamello Matikinca-Ngwenya, chief economist at FNB, said: “The economic ramifications of Russia’s war in Ukraine dealt hammer blows to consumer confidence around the globe and South Africa is no exception.

“Domestically, petrol prices have soared by R4.60 per litre (nearly 25%) since January, the consumer price inflation rate breached the 6% upper range of the Reserve Bank’s target for the first time in five years and the prime interest rate has been hiked by 75 basis points since the start of the year.

“While spiralling food and fuel prices are probably the main concern for less affluent households, the prospects of further steep interest rate hikes and sinking share

prices on the JSE would have compounded the inflationary pressures when it comes to middle- and high-income households.”

The BER said the extent of the drop in consumer confidence was alarming.

“Save for the panicked level 5 lockdown during the initial outbreak of the pandemic in SA, the index is now at its lowest level in 35 years,” according to the BER.

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