Consumer confidence in country at a record low
Analysts point to debt, drought, weak exchange rate and high prices as reasons for despair
HIGH household debt, student protests and drought conditions around the country are some of the reasons for South Africa’s record low consumer confidence levels during this year’s fourth quarter, analysts say.
John Loos, household and property sector strategist at FNB, said strong headwinds, in the form of higher personal income taxes, poor job creation, frequent power outages, drought conditions in large parts of the country, rising interest rates and an alarming depreciation in the rand exchange rate, have been battering household income growth and consumer confidence levels since the beginning of the year.
Loos said after recovering from a 14-and a-half-year low of -15 in this year’s second quarter to -5 in the third quarter, the FNB/BER Consumer Confidence Index (CCI) collapsed to -14 in the fourth quarter.
Loos said the vast majority of consumers believe that South Africa’s economic prospects will deteriorate further over the next year, and it is not a good time to buy durable goods.
“The drop in petrol and paraffin prices and the respite in load shedding bolstered consumer confidence in 3Q2015.
“However, the nationwide student protests over tuition fees and chaos that erupted inside and outside Parliament during the finance minister’s interim budget speech, coupled with the intensification of drought conditions and the implementation of water restrictions in some of the worst affected areas, probably weighed heavily on consumer sentiment in 4Q2015.”
Loos added that the large decline and generally low level of consumer confidence among high and higher middle-income consumers did not bode well for retail sales during the festive season as these households have the greatest spending power.
Sunisha Packirisamy, economist at MMI Holdings, said the drop in fuel prices and the alleviation in load shedding would have likely spurred consumer confidence over the quarter.
Packirisamy said despite extreme pessimism on the outlook for the economy, households remain relatively less downbeat regarding their own personal finances over the next 12 months.
She said decimated consumer expectations concerning the performance of the local economy over the next year were probably owing to the government’s limited ability to boost economic growth as they did in the period following the global financial crisis, through strong growth in government employment and steep wage increases in the public sector.
“We expect retail sales to come under pressure in the upcoming months, given the knock in consumer sentiment even among upper-income earners.
“Tepid jobs growth, a deceleration in real wage growth as well as high levels of indebtedness are likely to lead to disappointing growth in overall household spend next year, particularly in the durable goods categories.”
Izak Odendaal, investment strategist at Old Mutual Wealth, said the index showed that sentiment among consumers has been negative throughout this year.
“The rand has weakened from R13.82/$ at the start of the quarter.
“The SA Reserve Bank hiked rates at its November meeting and while there has been no load shedding in the fourth quarter, the impact on the severe drought is now being felt beyond the farms as food inflation is accelerating and certain urban areas have experienced water shortages.”
Odendaal said the only bit of good news for local consumers was that the collapse in global oil prices has kept the petrol price in check even as the rand weakened which, in turn, contributed to a relatively mild interest rate hiking cycle.
Loos added that low consumer confidence levels were likely to translate into weak retail sales growth during the holidays.
“Given low business confidence levels, poor job creation prospects and with food inflation now set to increase significantly on the back of the drought-induced rise in domestic grain prices and extraordinarily weak rand exchange rate, consumer spending is expected to come under even more pressure in the first half of 2016.”