Consumer confidence remains flat but things might be looking up
Consumer confidence has remained at 7 but this is above the long-term average
Consumer confidence remained at its 2018 low of 7 points in the fourth quarter of 2018.
The consumer confidence index, compiled by FNB and the Bureau for Economic Research at Stellenbosch University and released on Thursday, said: “Consumer sentiment settled at a much lower level during the second half of 2018 compared to the extraordinarily positive numbers booked at the height of Ramaphoria.”
This, however, is still above the long-run average reading for the CCI of 2 points and higher compared to the low levels recorded between 2015 and 2017.
This suggests that that most consumers are fairly optimistic that the outlook for the South African economy and their own household finances will improve during the next 12 months, FNB said.
The index plummeted to the lowest level for the year in the third quarter, after it surged to record highs when Cyril Ramaphosa took over the presidency at the beginning of 2018
Consumers were hard hit by the first VAT hike in almost two decades, the first recession since the global financial crisis and incremental fuel price increases in 2018. They were further hit in November by the first interest rate hike in two years, which kept confidence subdued.
While this was offset by huge sales on Black Friday and Cyber Monday as well as a considerable fuel price cut in December, consumers have still come under considerable strain.
The index looks at consumer attitudes and expectations and is used to evaluate economic trends and prospects. Respondents are asked about the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods such as furniture, appliances and electronic equipment.
The economic outlook and the household financial prospects subindices both improved. The index tracking whether consumers expected an upturn in the economy over the next year increased from 9 to 14 points, while the net majority of consumers anticipating an improvement in their household finances in 12 months’ time rose from 13 to 15.
“The positive reading in the fourth quarter is mainly derived from expectations regarding the future, and it remains to be seen whether these expectations will be realised, and if so whether consumers will act on this positive sentiment,” NKC economist Jacques Nel said.
This, however, was offset by a notable deterioration in consumers’ assessment of the appropriateness of the present time to buy durable goods such as vehicles or furniture. That subindex declined from zero to -7.
“This suggests that the growth in retail sales and consumer spending in general probably remained constrained during the fourth quarter of 2018,” FNB chief economist Mamello Matikinca-Ngwenya said.
“Looking ahead, the sharp drop in fuel prices, and possible further decline in February, should bring long-awaited budgetary relief to many households and simultaneously reduce the pressure on the Reserve Bank to implement further interest rate hikes to counter rising inflation,” she said.
An increase in policy and political certainty following the 2019 national elections and slightly stronger growth in 2019 should propel a lift in confidence, Investec economist Lara Hodes said.
“The historically high, Ramaphoria-induced consumer confidence in the first half of was unsustainable, but the prospect of a new year with lower fuel prices and stronger economic growth could support consumer confidence going forward,” NKC's Nel said.