Confidence among consumers in South Africa is expected to remain buoyant for the rest of the year after sentiment surged to its highest since 2019 in the third quarter, on the back of “a confluence of positive developments”.
The FNB/BER Consumer Confidence Index (CCI), released yesterday, jumped to -5 in the third quarter of 2024, recording its second consecutive 5-point increase from -10 in the second quarter.
The 5-point uptick in consumer confidence during the third quarter marks the third consecutive increase in consumer sentiment this year, propelling the CCI from an average of -20 in 2023 to a 5-year high of -5, signalling a striking improvement in consumers’ willingness to spend.
Concomitantly, FNB said the deceleration in inflation from 6% in 2023 to 4.6% by July, the introduction of the two-pot retirement system and the strong likelihood of an interest rate cut by this week will bolster real disposable incomes, and hence the ability of consumers to spend.
This bodes well for the outlook for real consumer spending during the remaining months of the year, with durable goods consumption in particular, standing to benefit from the rise in confidence, the implementation of the two-pot retirement system and expected interest rate cuts.
Although the latest reading remains somewhat below the long-term average of the CCI (at zero since 1994), the reading of -5 is the highest that confidence has been since the first half of 2019, before the global outbreak of the COVID-19 pandemic.
FNB said the 10-point jump in the CCI over the last six months (and 20-point increase since mid-2023) signalled a pronounced improvement in consumers’ willingness to spend and bodes well for the outlook for consumer spending for the remainder of the year.
Whereas the second-quarter increase in the CCI was primarily driven by a major improvement in the economic outlook sub-index of the CCI on the back of the cessation of load-shedding, FNB said the third-quarter uptick can mainly be ascribed to a marked increase in the household financial outlook sub-index and a further improvement in the sub-index measuring the appropriateness of the present time to buy durable goods.
The household finances sub-index of the CCI increased from 8 to 14 index points during the third quarter – the highest reading since the fourth quarter of 2021.
After edging up from -30 to -28 in the second quarter, the time-to-buy durable goods sub-index of the CCI improved further to a two-year high of -23 in the third quarter.
The economic outlook sub-index of the CCI, in turn, extended its 13-point second-quarter surge by another two points to reach -7 in the third quarter.
FNB chief economist, Mamello Matikinca-Ngwenya, said there were a number of factors that had worked in favour of consumers during this period.
“A confluence of positive developments has bolstered the confidence levels of South Africa’s more affluent consumers over the last six months,” she said.
“These include the formation of a government of national unity, the absence of load-shedding, a stronger rand exchange rate, substantial fuel price declines, a deceleration in inflation and expectations of interest rate cuts in coming months.
“Moreover, the implementation of the two-pot retirement system on 1 September now allows consumers access to a portion of their retirement savings, which will no doubt hearten households experiencing financial distress.”
A breakdown of the CCI per household income group shows that the third-quarter increase in overall confidence was driven by much-improved sentiment among high-income households, as well as a further uptick in middle-income confidence.
Having slumped from -14 to -16 at the time of the second quarter survey, the confidence levels of high-income households, those earning more than R20 000 per month, rebounded to a 5 year high of -6 in the third quarter.
The confidence levels of middle-income households earning between R5 000 and R20 000 per month improved to -4 during the third quarter, after leaping from -17 to -9 in the previous quarter.
The confidence of low-income households earning less than R5 000 per month soared from -17 to -4 index points during the second quarter – posting the largest increase of the three income groups – but slipped back slightly to -7 during the third quarter.
“Although the termination of load shedding, the deceleration in food inflation and substantial fuel price cuts would also have buoyed the confidence levels of less affluent consumers in recent months, low-income households are less likely to have pension funds and debt that is tied to the prime interest rate,” Matikinca-Ngwenya said.
“Prospects of interest rate cuts and the implementation of the two-pot retirement system would, therefore, be less beneficial to low-income consumers.”
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