Picture: ISTOCK
Picture: ISTOCK

The Ramaphosa effect saw consumer confidence soar to a record high in the first quarter of 2018, but economists warn this is likely to moderate as consumers begin to take strain from a hike in value-added tax (VAT) and the fuel levy.

The FNB/BER consumer confidence index rose by 34 index points to 26 in the first quarter from -8 in the fourth quarter of 2017. This is the first time the index has breached the zero mark in three years and is the highest single quarterly increase since 1982.

It benefited from reduced policy and political uncertainty after President Cyril Ramaphosa’s election, together with the avoidance of a downgrade by Moody’s ratings agency and the return to fiscal consolidation in the February budget, said Investec economist Lara Hodes.

This jump in consumer confidence has already translated into consumer spending — based on the strength of retail sales. Retail trade sales rose 4.9% year on year in February 2018 (R80.3bn) after a 3.2% increase in January.

“We’ve hit record highs with a massive bounce back buoyed by the positive economic sentiment. Although we expect the index to remain positive, we don’t see it sustaining these levels,” said BNP Paribas economist Jeff Schultz.

The VAT hike from 14% to 15%, coupled with a rise in the fuel levy and lacklustre employment prospects, are all expected to keep consumers more cautious, he said.

Econometrix MD Azar Jammine described the consumer confidence increase as a dramatic improvement but said it would be short-lived. “A lot has happened since March globally and locally that will dampen this sentiment. Consumers don’t usually look ahead so they wouldn’t have factored the VAT hike in,” he said.

While the rand strengthened in the first quarter of the year, it took a dip this week. Jammine said Ramaphosa still faces several headwinds — such as ideological differences in the ANC, turning around state-owned entities and the “uncertainty and anxiety” around the debate on land expropriation without compensation.

“It’s all the Ramaphosa effect, but we need to see what happens in the coming months.”

FNB chief economist Mamello Matikinca acknowledged that while the consumer confidence index may have overshot slightly, the VAT hike would have weighed on consumer sentiment.

She said the zero rating of basic food items such as maize meal will mitigate the effect of this tax increase on low-income households, who spend a large proportion of their household budgets on food.

menons@businesslive.co.za

 

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