South African consumer sentiment is improving although confidence remains “decidedly negative”, the latest FNB/BER Consumer Confidence Index (CCI) revealed on Thursday.
According to the latest CCI report confidence edged up to -12 in the second quarter of 2024, after having improved from -17 to -15 index points in the first quarter of 2024.
The second quarter CCI survey was conducted between June 3 and 14 after the results from the national election had been declared, but before the configuration of the government of national unity (GNU) had been finalised.
“At -12, which is well below the long-term average reading of zero for the CCI since 1994, consumer sentiment remained decidedly negative, with some consumers probably still quite uncertain about which parties would join the GNU,” the CCI report noted.
However, the latest consumer confidence reading is the highest in 18 months, since the fourth quarter of 2022 when the CCI reached -8, pointing to a gradual improvement in consumer spending compared to the very weak performance recorded in 2023.
According to the report, the increase in the CCI during the second quarter can be ascribed to a further improvement in the economic outlook sub-index of the CCI and a slight increase in the sub-index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods.
Having bounced back from -28 to -22 in the first quarter, the economic outlook sub-index extended its gains to reach -16 in the second quarter – the highest economic outlook reading since the fourth quarter of 2021.
Following a slump from -25 to -30 in the first quarter, the time-to-buy durable goods sub-index of the CCI posted a partial recovery to -28 for the period. The household finances sub-index of the CCI remained steady at 8 during the second quarter, after three consecutive upticks from -2 in the second quarter of last year.
A breakdown of the CCI per household income group showed that the slight improvement in overall confidence was driven by an uptick in the confidence levels of middle- and low-income households.
The confidence levels of middle-income households (earning between R5 000 and R20 000 per month) jumped from -17 index points to -10, while the confidence of low-income households (earning less than R5 000 per month) improved from -16 to -10. However, the confidence levels of high-income households (earning more than R20 000 per month) remained unchanged at -14 for the period.
FNB chief economist, Mamello Matikinca-Ngwenya, attributed improved confidence levels to several factors.
"Positive developments such as the cessation of load-shedding during the second quarter, substantial cuts in fuel prices in June, a R20 increase in the SRD grant from April and a significant deceleration in food inflation likely buoyed confidence levels, particularly among low- and middle-income consumers.
“However, high interest rates and uncertainty over which parties would form part of South Africa’s government of national unity probably kept the lid on high-income confidence. Provided that the GNU remains intact and the JSE and rand exchange rate hold onto their recent gains, there is scope for an improvement in high-income confidence during the third quarter,” he said.
According to the report, real growth in consumer spending “sorely disappointed” over the past year, with a 0.4% year-on-year (y-o-y) contraction in the first quarter of 2024.
“The gradual improvement in consumer sentiment, coupled with lower inflation, should boost real household consumption in the coming months,” the report noted.
However, with the prime interest rate still at a 15-year high of 11.75%, consumers continue to shy away from big-ticket durable goods purchases, as reflected by the 11.7% y-o-y contraction in new passenger car sales in May 2024.
“Should the positive sentiment towards SA hold following the formation of the GNU, the stronger rand exchange rate will allow for lower import prices and provide scope for the SARB to cut the prime interest rate in September; this should ignite a stronger recovery in consumer spending towards the final quarter of 2024,” the report concluded.
