LEFT IN THE COLD
Gloomy consumers swept up in a storm of negative economic factors
In what is perhaps the most accurate reflection of the current economic climate, consumer confidence has dropped to its second-lowest reading since 1994, when the country was on the brink of democracy.
In a sombre reflection of the current freezing spell and gloomy weather in the Western Cape, South Africans across the country are starting to resign themselves to the barrage of financial impacts facing them – from increasing interest rates to rising inflation, continued rolling blackouts, widespread government corruption, poor diplomatic decisions and a depreciating rand. It’s a lot – and the effects are starting to wear on even the most resilient South Africans – the higher-income earners.
South Africa’s lowest consumer confidence reading was -33, and that was during the second quarter of 2020, when the country was in the grips of its most severe economic lockdown yet. The FNB/BER Consumer Confidence Index (CCI) for the second quarter of this year is at a low of -25 index points reflecting consumers who are increasingly stressed out about household finances and the country’s economic prospects.
The FNB/BER CCI combines the results of three questions posed to adults in South Africa: the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.
FNB’s chief economist, Mamello Matikinca-Ngwenya, says the economic outlook sub-index of the CCI dropped by three index points to -37, while the time-to-buy durable goods index eased by a further point to -35.
“Both of these indices are now deeply negative, suggesting that the vast majority of consumers expect a deterioration in South Africa’s economic growth over the next 12 months and consider the present time as highly inappropriate to purchase durable goods such as vehicles, furniture, household appliances and electronic goods.
“The confidence levels of high-income households (earning more than R20,000 per month) deteriorated the most, falling from -31 to a new historic low of -40, showing that affluent consumers are not only highly alarmed about the outlook for the South African economy, but also fear that their household finances will worsen over the next 12 months.
“Further interest rate hikes, rand depreciation and concerns about South Africa’s diplomatic relations with the rest of the world in all likelihood compounded the negative impact of the electricity crisis on high-income confidence. Affluent consumers are more likely to have invested – at great expense – in alternative electricity sources such as solar or battery power and are also more inclined to have debt, such as home loans, that is tied to the soaring prime interest rate,” Matikinca-Ngwenya notes.
Debt service levels at the limit
The prime lending rate has increased by 475 basis points over the past two years, pushing consumers’ debt service levels to the limit, as the South African Reserve Bank wields interest rate hikes as a blunt tool to dampen inflation. Although inflation has dipped to 6.3%, the Reserve Bank has not yet ruled out further interest rate hikes.
“Policy is going to have to remain tight for a little bit longer than the market had been pricing,” SARB Governor Lesetja Kganyago told Bloomberg this week.
The weaker rand exchange rate has also placed upward pressure on the cost of overseas travel and imported goods such as new vehicles, typically purchased by higher-income consumers.
“Load shedding and sustained high food inflation are likely of primary concern to low- and middle-income households, but sharply lower paraffin prices and the extension of the jobs recovery in the services sector may be cushioning the impact on less affluent consumers,” says Matikinca-Ngwenya.
Annabel Bishop, the chief economist at Investec, points out that the government’s rapid move towards nationalising private healthcare and expropriation without compensation is also negatively affecting high-income earners’ confidence in the future of the country, given the “parlous state of public healthcare that has been of an extremely low quality in global comparisons for a number of decades, and which is unlikely to improve under National Health Insurance (NHI)”.
Bishop says the state absorbing and managing all healthcare under the NHI is unlikely to spur confidence to lift tourism or for high-income earners to stay in SA.
“Without high-income earners, the monies the NHI is seeking to access will dry up, and tax revenues fall severely. Repairing public healthcare instead should be the focus first, particularly management and service delivery, not broad-based implementation of the NHI,” she observes. DM