/ 7 September 2023

Depressed consumer sentiment lifts slightly

Woolworths, Shoprite, Spar test consumers’ resilience with higher prices
Consumer confidence has rebounded from the low recorded in the second quarter, but it remains firmly within depressed territory. Photo: Waldo Swiegers/Bloomberg/Getty Images

Consumer confidence has rebounded from the low recorded in the second quarter, but it remains firmly within depressed territory.

According to an index compiled by FNB and the Bureau for Economic Research (BER), consumer confidence lifted from -25 — the second-lowest reading on record — to -16 in the third quarter of 2023. This latest reading remains well below the long-run average reading of zero since 1994, signalling a low willingness to spend among consumers, a press release accompanying the index showed.

The rebound in consumer confidence comes alongside better-than-expected GDP data during the third quarter, released by Statistics South Africa earlier this week. This improved economic data is rounded out by a slight lift in the business confidence index, released by Rand Merchant Bank (RMB) and the BER on Wednesday.

The rebound in consumer confidence was helped by a remarkable lift in the confidence levels of high-income households (earning more than R20 000 a month) following an outsized decline during the first half of 2023, Thursday’s release notes.

“Spooked by a dramatic escalation in load-shedding, a sharp depreciation in the rand exchange rate, successive interest rate hikes and the diplomatic fallout following the docking of a Russian ship in Simon’s Town, affluent consumers became particularly alarmed about South Africa’s economic prospects.”

High-income confidence, according to the release, fell to an all-time low of -40 in the second quarter of 2023, but rebounded to -17 in the third quarter.

“While the financial pulse of the nation remains weak,” FNB chief economist Mamello Matikinca-Ngwenya said, “there appears to be some light at the end of the tunnel for consumers.”

Inflation, Matikinca-Ngwenya said, has cooled considerably, from a yearly rate of 7.1%

in March 2023 to 4.7% in July, fuelling hopes that the South African Reserve Bank will stop hiking interest rates. 

“Combined with a sustained recovery in employment — with another 154 000 jobs added

during the second quarter — lower inflation should bolster the purchasing power of consumers somewhat towards the end of 2023,” Matikinca-Ngwenya added.

“An unexpected and noticeable easing in load-shedding during the survey period,

coupled with reduced dependency on Eskom by households that invested in alternative power supply sources, and diminishing concerns around South Africa’s diplomatic relations with the West likely also heartened consumers.” 

The release further notes that, although the rebound in consumer confidence suggests more of a willingness to spend, the ability of households to actually reach into their pockets probably did not improve to the same extent during the third quarter. 

“In fact, consumer sentiment about the outlook for their household finances has remained relatively unchanged (at subpar levels) during the first three quarters of 2023,” the release adds. 

“Therefore, it is unlikely that real consumer spending growth, particularly on interest-rate sensitive goods and discretionary goods and services, will accelerate meaningfully during the third quarter.”

Following the slight lift in the RMB/BER business confidence index — from 27 in the second quarter to 33 in the third — Investec chief economist Annabel Bishop noted that the reading remains in very depressed territory. A reading below the neutral 50 level shows negative sentiment.

Bishop said: “This is unsurprising given the failures at the state-owned electricity and logistics utilities to meet the full power and rail/port transport requirements of the economy.

“Companies are forced to produce less and employ fewer people as Transnet and Eskom do not allow sufficient power and freight capacity to meet their full needs, while self-generation of power is typically more expensive and the ability to find alternative freight transport not typically viable.”
Load-shedding poses a considerable risk to the economy, and thus sentiment, going forward. This week Eskom implemented stage six load-shedding until further notice as the utility embarks on planned maintenance.