South African consumer confidence rebounds, but remains deeply depressed

The quarterly FNB/BER Consumer Confidence Index (CCI) is a widely watched barometer. There are some silver linings in this quarter’s reading, but the outlook is pretty bleak. 

“To be sure, the significant slowdown in the rate of new Covid-19 infections in SA, the further easing of restrictions on economic activity and the partial recovery in consumer confidence are all good for the South African economy,” an FNB statement said.

“However, the fact that the CCI regained only 10 index points following its (Q2) plunge reinforces our view that the Covid-19 pandemic and related economic restrictions delivered a profound blow to consumers’ willingness and ability to spend — and it may take years for consumer confidence and household income to recover fully,” it said.

So this is yet another data set which suggests that recovery to pre-pandemic levels — when the economy was hardly shooting the lights out — may well take years. This is a monumental setback and it is worrying to note that 300 basis points worth of interest rate cuts that the Reserve Bank has made so far in 2020 have failed to entice consumers to whip out their credit cards. On the other hand, without this aggressive round of rate reductions, the index may well have had less of a rebound. 

FNB chief economist Mamello Matikinca-Ngwenya said this did not bode well for the big-ticket and luxury retail sectors. 

“When household income is under pressure and consumer confidence is low, households tend to slash their spending on expensive luxuries. We, therefore, expect retail sales of durable and semi-durable goods such as new vehicles, high-end furniture and household appliances, jewellery and designer clothing and footwear to remain under intense pressure in the foreseeable future,” said Matikinca-Ngwenya.

Demand for non-durable goods, by contrast, should remain relatively solid.  

“... the marked increase in financial aid to low-income households, substitution away from discretionary spending and the lifting of the ban on the sale of alcohol and tobacco products should support retail sales of non-durable goods, such as food, beverages, other groceries, cigarettes, pharmaceuticals and toiletries in the near term,” Matikinca-Ngwenya said. 

A much fuller picture of the economy will emerge this week, with Q2 GDP data due on Tuesday and the RMB/BER Business Confidence Index expected on Wednesday. On an annualised basis, the economy is widely expected to have contracted by close to 50%. That is a confidence-shattering event. But with load shedding back in full swing and no real sign of meaningful economic reforms, don’t expect confidence, consumer or business, to surge any time soon. DM/BM