Consumer confidence among middle-class South Africans has reached its highest level in three years, with potential for further upside if the Government of National Unity (GNU) progresses in line with analyst forecasts.
The FNB/BER Consumer Confidence Index (CCI) rose to -12 in the second quarter of 2024, following a two-point increase from -17 to -15 in the first quarter.
This marks a significant change in sentiment since the end of 2023.
The survey was conducted from June 3 to June 14, after the national election announcement but before the GNU's formation was finalized.
The breakdown of the CCI by household income groups revealed that the slight overall improvement was driven by increased confidence among middle- and low-income households.
Confidence among middle-income households (earning between R5,000 and R20,000 per month) rose from -17 to -10 index points.
Low-income households (earning less than R5,000 per month) saw their confidence increase from -16 to -10.
For high-income households (earning more than R20,000 per month), confidence remained steady at -14.
Despite being the most pessimistic group, high-income households are experiencing their highest confidence levels since 2021.
Positive factors such as the end of load shedding during the second quarter, significant fuel price reductions in June, a R20 increase in the SRD grant from April, and a marked slowdown in food inflation likely boosted confidence, especially among low- and middle-income consumers, said FNB Chief Economist Mamello Matikinca-Ngwenya.
“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.”
FNB noted that real growth in consumer spending has been disappointing over the past year, with a 0.4% year-on-year decline in Q1 2024.
The gradual rise in consumer sentiment and lower inflation are expected to enhance household consumption in the coming months.
“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 – as indicated by the 11.7% y-o-y contraction in new passenger car sales in May 2024,” said FNB.
“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.”
Interest rates:
Governor Lesetja Kganyago stated this week that South Africa’s central bank must restore confidence in its ability to meet its inflation target, after struggling to reduce consumer price growth to 4.5% over the past three years.
The Reserve Bank targets an inflation range of 3% to 6%, with a preference for the midpoint. As of May, the annual inflation rate was 5.2%, unchanged from the previous month.
Despite inflation returning to the target band in June 2023, it has remained in the upper half of that range without clear progress towards the 4.5% goal, Kganyago noted in the central bank’s annual report, Bloomberg reported.
Rebuilding trust in meeting this target is crucial, Kganyago said. The central bank projects inflation to average 5.1% this year and stabilize at 4.5% by the second quarter of 2025.
Analysts, businesspeople, labour unions, and households surveyed by the Bureau for Economic Research expect average inflation of 5.4% this year and 5.3% next year.
To achieve its target, the MPC has kept the benchmark interest rate at a restrictive 8.25%. Although the central bank’s quarterly projection model suggests borrowing costs will ease as inflation slows, upside risks such as higher interest rates in advanced economies and unstable inflation expectations have led policymakers to maintain the current rate.
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