Confidence among South Africa’s consumers eased in the second quarter of 2007, but remained high as most expected the benefits of faster economic growth to filter down to them, a survey found. The confidence index compiled by First National Bank (FNB) and the Bureau for Economic Research (BER) was down to +21 from a record high of +23 in the first three months of this year.
”The results do not reflect the impact of the interest-rate increase of June 7,” FNB said in statement that noted that consumer confidence was still high. ”The higher than expected inflation rate published in May came too late to have much of an impact.”
The central bank’s 3% to 6% inflation target was breached for the first time in nearly four years in May when data showed that year-on-year inflation hit 6,3% in April.
Interest rates were hiked by 50 basis points in early June to 9,5%. The central bank raised interest rates by 200 basis points last year in a bid to keep inflation within the targeted band.
Cees Bruggemans, FNB’s chief economist, said strong economic growth was benefiting most households, with low-income earners’ optimism at a 10-year high.
”The single most important reason for the unprecedented high level of consumer confidence is the strong growth in household income … This condition is now also increasingly benefiting new job seekers and the poor,” he said.
South Africa’s economy grew 5% last year, the highest rate for three decades, and is seen expanding by 4,9% this year.
”The current levels of consumer confidence also reflect consumers’ experience and perception of the current good economic times,” Bruggemans said.
That enthusiasm, however, may be tempered in the coming months as the effects of higher interest rates and a new more restrictive credit law dampen household spending, Bruggemans said.
On June 1 South Africa introduced legislation that will make it illegal for lenders to extend credit to consumers who are likely to be unable to handle the debt in an effort to ease household debt levels, which have reached a record 76% of disposable income. — Reuters