Consumer confidence in South Africa has fallen to a four-year low, according to the latest consumer confidence index (CCI) by First National Bank and Stellenbosch University’s Bureau for Economic Research (FNB/BER), released on Tuesday.
According to FNB/BER index, consumer confidence declined by 10 index points, from +22 during the fourth quarter of 2007 to +12 during the first quarter of 2008.
The first quarter 2008 decline was significant as ”it was the biggest decline between consecutive quarters in four years”, FNB said.
The last time consumer confidence fell by such a big margin was during the third quarter of 2004 when the index declined by 14 index points.
The first-quarter 2008 tumble occurred only a year after the index reached the historic high of +23 during the first quarter of 2007 — and directly after the fourth quarter of 2007, when the index rebounded and reached +22.
”The size of the fall is considerable against the backdrop of the CCI’s stability over the past two-and-a-half years,” FNB said.
However, Cees Bruggemans, chief economist of FNB, said that ”although the CCI is currently at its lowest level in four years, a reading of +12 indicates that the majority of consumers are still optimistic about the future”.
He said the majority expected the economy and their own finances to continue improving and the respondents were about equally split between those rating the present a good time and those rating it a bad time to buy durable goods”.
The fall in consumer confidence could be attributed to a number of adverse developments since the previous survey, he said.
The prime overdraft rate was increased for an eighth time in December 2007.
This came at an inopportune time for indebted households, as previous interest-rate increases had already dented their cash flows.
Higher food and petrol price increases knocked the confidence of low-income earners and ”deteriorating employment prospects might also have played a role”.
Bruggemans said that house prices had lost all forward momentum and the volatility of share prices on the JSE and the fall in the value of the rand might have ”unsettled many high-income earners”.
He also said that the rolling power cuts in January might also have made some consumers ”more uncertain about the future”.
However, Bruggemans drew the conclusion that although overall consumer confidence declined sharply during the first quarter of this year, it nevertheless remained relatively high.
”This implies a lingering willingness to spend. However, households’ ability to spend [i.e. household income growth and access to credit] will determine if this willingness to spend will also translate into actual sales during subsequent quarters.”
Retail sales could contract further during upcoming quarters should household income growth slow down due to, for example, lower employment growth or a further erosion of real purchasing power, Bruggemans said.
”Such a development will most likely reduce consumer confidence further as households would be disappointed if the sustained strength of their own finances does not materialise as now expected and the expected poorer economic performance also starts to affect their own finances.”
Consumers’ resultant reduced willingness to spend could increase the retreat in retail sales, he said. — Sapa