Consumer confidence has deteriorated dramatically as the economic outlook sours, signalling a marked slowdown in shopper spending within the coming months.
Notable although is even high-income shoppers’ confidence is seeing a sharper decline than that of low-income South Africans because the finish of 2021.
After already slipping from -9 to -13 index factors throughout the first quarter of 2022, the FNB/BER Consumer Confidence Index (CCI) plunged to -25 within the second quarter of 2022.
Apart from the index studying of -33 within the second quarter of 2020, when the sudden outbreak of the pandemic and implementation of stage 5 lockdown decreased sentiment, the brand new studying is the bottom in additional than 3 a long time.
Official knowledge signifies that development in actual shopper spending remained sturdy at 3.2% year-on-year throughout the first quarter of 2022, however that is about to alter as shoppers will spend much less in coming months.
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The Bureau for Economic Research (BER) says the exceptional collapse of shopper confidence may be ascribed to a significant deterioration within the economic outlook (from -18 to -39) and a whole turnabout within the family monetary prospects (from +8 to -5).
The index measuring if it’s a good time to purchase sturdy items, such as automobiles, furnishings, family home equipment and digital items, additionally decreased from -28 to -32, indicating that customers contemplate the current as an inappropriate time to purchase sturdy items.
High-income shopper confidence already slumped from -11 to -18 index factors within the first quarter and now the confidence stage of high-income households, incomes greater than R20 000 per 30 days, crashed to -30 within the second quarter, solely 3 index factors from the historic low of -33 recorded within the second quarter of 2020.
It is obvious that the overwhelming majority of prosperous households now anticipate that their family funds and the nation’s economic development price will deteriorate.
The confidence stage of middle-income households, incomes between R2 500 and R20 000 per 30 days, additionally decreased by -11 to -23, whereas the confidence of low-income shoppers, who earn lower than R2 500 per 30 days, declined from -6 to -16 index factors.
Although shopper sentiment is now very depressed throughout all three earnings teams, prosperous shoppers are significantly extra downbeat in comparison with low-income households, the BER factors out.
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War, gasoline costs, inflation and repo price hammers shopper confidence
“The economic ramifications of Russia’s war in Ukraine dealt hammer blows to consumer confidence around the globe and South Africa is no exception. Domestically, petrol prices have soared by R4,60 per litre (nearly 25%) since January, the consumer price inflation rate breached the 6% upper range of the Reserve Bank’s target for the first time in 5 years and the prime interest rate has been hiked by 75 basis points since the start of the year,” says Mamello Matikinca-Ngwenya, chief economist at FNB.
“While spiralling food and fuel prices are probably the main concern for less affluent households, the prospects of further steep interest rate hikes and sinking share prices on the JSE would have compounded the inflationary pressures when it comes to middle- and high-income households.”
Mamello Matikinca-Ngwenya says non-payment of the R350 per 30 days social reduction of misery (SRD) grant to 10.6 million South Africans in April and May most likely additionally weighed on the confidence ranges of many low-income households.
“However, a substantial improvement in job creation in recent months and Sassa’s commitment to resume the SRD grant payments at the end of June probably prevented an even more pronounced decline in low-income consumer confidence during the second quarter.”
The BER says though shopper sentiment was anticipated to weaken additional attributable to a worsening inflation and rate of interest outlook, the extent of the drop in shopper confidence is alarming. “Save for the panicked level 5 lockdown period during the initial outbreak of the COVID pandemic in SA, the index is now at its lowest level in 35 years.”
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Household consumption slows down considerably
Household consumption expenditure nonetheless shocked on the upside within the first quarter, however the dramatic deterioration in confidence factors to a sudden droop in shoppers’ willingness to spend, which foreshadows a major slowdown in actual shopper spending development relative to the robust first quarter.
Although shoppers are prone to tighten their purse strings, the BER says the surprisingly massive fall in shopper confidence may signify an overreaction to current developments and will not translate into an equally massive contraction in shopper spending.
Matikinca-Ngwenya says optimistic developments, such as the scrapping of all remaining pandemic rules, may end in a gradual restoration in job creation, whereas the again fee of missed SRD grants may counter a few of the mounting inflationary and rate of interest pressures.
Affluent shoppers’ financial savings over the past two years also needs to assist spending by high-income households, however the mixture of hovering meals and gasoline costs as nicely as elevated wariness amongst shoppers will little question see a realignment of shopper budgets, Matikinca-Ngwenya says.
It is probably going that households will begin to attract on financial savings and slash their discretionary spending, particularly on big-ticket sturdy items, to buffer shopping for primary requirements and assist the restoration in spending on clothes, eating places, recreation and leisure.
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What shopper confidence surveys present
Consumer confidence surveys present common assessments of shopper attitudes and expectations and are used to guage economic traits and prospects.
The surveys are designed to discover why modifications in shopper expectations happen and the way these modifications affect shopper spending and saving choices.
A low stage of confidence signifies that customers are involved in regards to the future and are fearful about job safety, wage will increase and bonuses. They then have a tendency to chop spending to solely embody primary requirements to have the ability to pay their money owed.
If confidence is excessive, shoppers are inclined to incur debt or cut back financial savings and spend extra on discretionary objects, such as furnishings, family gear, motor automobiles, clothes and footwear, which are sometimes financed on credit score.
Spending on these things declines when confidence is low, as households can usually delay their buy with out experiencing an instantaneous deterioration in dwelling situations, the BER says.
