Rise in confidence as people dared hope
CONSUMER confidence improved by eight points in the third quarter. The improvement is mainly due to the expectation that the economy and personal finances will improve over the coming year. But respondents still don’t feel that it’s a good time to buy durable goods, and their view is reflected in the persistent decline in sales of new vehicles and other durable goods.
Despite economic growth of only 0.2% in the third quarter, there were good reasons for the improvement in confidence. During the survey period, the dollar was at R13.50 and consumers had the benefit of a 117c/l fuel-price decrease. Not only that, but inflation was receding, and interest rates remained steady. However, these metrics have deteriorated. The rand has had a bumpy ride on political noise. Also, a production cut by Opec members has seen oil prices rise above $50 a barrel.
Another important boost to the consumer confidence index was the outcome of the localgovernment elections. Digging into the details is telling. In the Western Cape, confidence rose by six points, from -24 to -18. Confidence in Gauteng rose 11 points, from -6 to 5, while in the Eastern Cape, where the ANC lost control of the Nelson Mandela Bay area, confidence soared 29 points, from 0 to 29.
These improvements embody the hope for change, improvement and a change in the status quo.
That said, consumer confidence in the Western Cape and KwaZulu-Natal (-17 to -10) remains in negative territory, and a great deal more is required to get most respondents confident about the future, not only of their household finances, but that of the South African economy.
That overall confidence was driven higher by future expectations, and that those expectations have been quelled by higher inflation and a weaker exchange rate, suggests that the consumer confidence index will return to second-quarter levels in the final quarter of 2016.
Economic growth has long been supported by household spending, at the expense of a large current-account deficit. However, domestic consumers remain under considerable pressure. Credit extension to households is deep in negative territory, debt levels remain elevated relative to disposable income, and employment is essentially static.
But recent improvements to exports, the electricity supply and a compression of import growth have seen a narrowing of the current-account deficit and strengthening of the rand. Having averted a credit downgrade by the three major ratings agencies, the focus must be on maintaining this momentum.
Economic growth for this year is largely accounted for, and, thankfully, should meet the forecast of the agencies. Next year is going to be the make-or-break year, not only in terms of ratings, but, in particular, in terms of growth.
The economy is expected to improve in 2017. There are several global and domestic reasons underpinning this.
In the US, significant investment in infrastructure is likely, which would raise commodity prices and be a boost for a commodity exportbiased country like South Africa.
Domestically, having signed multiyear labour and wage agreements, and with electricity shortages no longer a constraint, mining and manufacturing are poised to take advantage of improving global demand. Moreover, after years of drought, agriculture is expected to reap the dividends of better rainfall, not only helping to curb imports and boost exports, but bringing inflation back into a manageable range. The tertiary sector, too, should maintain its momentum as moderating inflation alleviates pressure on disposable income.
Outperformance is by no means assured, but it wouldn’t be the first time our country has proved the naysayers wrong.
Nxedlana is FNB chief economist