SA consumer confidence rises to 5-year high fuelled by two-pot shot, rate cut hopes

17 Sep 2024

Mounting hopes for a domestic interest rate cut and the household liquidity boost from the two-pot pension fund reforms lifted South African consumer confidence in the third quarter (Q3) to a five-year high. This was driven by the high and middle-income households that stand to benefit the most from these trends.

The FNB/BER Consumer Confidence Index (CCI) rose five points in Q3 to -5, its highest level since the first half of 2019, FNB said on Tuesday, 17 September 2024.

The index remains in negative territory and below its long-term average of zero going back to 1994, which underscores the point that South African consumers are generally in a downbeat if improving mood.

But on the bright side, it was the third consecutive quarter of five-point gains, and the CCI has increased by 20 points in total since the middle of last year.

FNB said that this “... signals a pronounced improvement in consumers’ willingness to spend and bodes well for the outlook for consumer spending for the remainder of the year”. The primary boost to consumer confidence in Q2 was probably the cessation of the rolling nationwide power cuts dubbed “load shedding”.

The latest gains in Q3 can be attributed to mounting expectations of a domestic interest rate cut and the household liquidity boost from the “two-pot” reforms that allow for an early drawdown on pension funds.

The South African Reserve Bank (Sarb) is widely anticipated to start cutting rates in the face of slowing inflation when its Monetary Policy Committee wraps up its latest meeting on Thursday. A forecast US rate cut on Wednesday will seal that deal.

Most likely scenario

The most likely scenario is a 25 basis point cut that would bring the prime lending rate down to 11.5%, with more to follow. Meanwhile, households are already dipping into their pension funds.

These trends were seen lifting confidence among the upper and middle-income brackets that stand to benefit the most from this double shot, with the formation of the Government of National Unity (GNU) adding another boost.

“... the confidence levels of high-income households (earning more than R20,000 per month) rebounded to a five-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,” FNB said.

But consumer confidence for lower-income households in Q3 declined to -7 from -4, slightly reversing the big jump in Q2.

Read more: Agribusiness Confidence Index recovers in third quarter as businesses pin their hopes on GNU

“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,” said FNB Chief Economist Mamello Matikinca-Ngwenya.

“Prospects of interest rate cuts and the implementation of the two-pot retirement system would, therefore, be less beneficial to low-income consumers.”

Overall, the trends, including the slowing of the consumer inflation rate to 4.6% in July (the August number will be unveiled on Wednesday), bode cautiously well for consumer confidence. As Christmas approaches, South African retailers will be hoping that consumer sentiment maintains its steady rise. DM

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Most likely scenario