South African consumer confidence plunged to a new four-year low in the second quarter of 2008, stung by high interest rates and soaring inflation, a survey showed on Wednesday.
The quarterly consumer confidence index, compiled by First National Bank (FNB) and the Bureau for Economic Research (BER), fell by 18 points to -6, pointing to more households being pessimistic than confident about the future.
It was one of the biggest quarterly falls on record and brings the cumulative decline this year to 28 points.
”What took four years to build up during 2004 to 2007 was wiped out in a matter of six months in the first half of 2008,” FNB chief economist Cees Bruggemans said.
”The economic outlook for the next twelve months has certainly deteriorated in a major way, with Eskom, CPIX inflation, oil, food, house prices and interest rates clearly the big drivers, though for some consumers issues such as Zim [Zimbabwe] and xenophobia will also have been factors.”
South Africa’s central bank has raised its repo rate by 5 percentage points to 12% since June 2006 to try to tame surging inflation, driven by rising food and fuel costs.
The tighter monetary policy has cut demand for houses, leading to lower prices, while power utility Eskom is struggling to meet demand for electricity, resulting in costly blackouts.
South Africa was rocked by deadly attacks against African immigrants in May and the political and economic crisis in neighbouring Zimbabwe continues.
While there are clear signs consumers are struggling under high interest rates, price pressures are still building, suggesting policy could tighten even further.
”The outlook is therefore a miserable one, with even lower consumer confidence readings expected over the next twelve months,” Bruggemans said. — Reuters