Picture: ISTOCK
Picture: ISTOCK

As consumers battle headwinds, confidence is expected to plunge before the general election and remain subdued for much of the year.

Consumer confidence is an economic indicator that measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation,  and provides an indication of how consumers will spend.

Growth is expected to just breach the 1% mark this year while consumers face structurally high unemployment in a sluggish labour market with muted household credit extension and rising administered prices and other taxes expected to weigh on confidence.

March production activity in the mining, manufacturing and retail sectors will probably disappoint, constrained by the intense load-shedding for a number of days that month.

PODCAST: South African consumers are going through the most.

The consumer confidence index, compiled by FNB and the Bureau for Economic Research at Stellenbosch University, will be released on Thursday and is expected to drop to six points, according to economists polled by macroeconomics website Trading Economics.

Consumer sentiment settled at a much lower level during the second half of 2018 compared to the record high when Cyril Ramaphosa took over the presidency early in 2018. 

“The index has been surprisingly resilient in recent quarters despite moderating from its peak in the first quarter of 2018,” FNB chief economist Mamello Matikinca-Ngwenya said.

Consumer confidence fell to seven points in the third and fourth quarters of 2018.

“We expect the first quarter release of the index to be more reflective of ailing consumer fundamentals,” she said.

In April, fuel prices rose further while big personal income-tax hikes equal to about 0.25% of GDP and increases in electricity tariffs took effect.

“The consumer is likely to remain under pressure in the remainder of 2019,” said Absa senior economist Peter Worthington.

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.

Last week, the subdued retail environment emphasised the plight of SA consumers. Retail trade sales growth eased to 1.1% in February after January’s moderate 1.2% lift.

The retail sector is an important indicator of consumer spending, which drives growth in the economy as it accounts for just more than 60% of GDP.

“Over the short term consumer spending will be helped by subdued inflation, particularly lower food prices, which will support disposable income and discretionary spending,” Nedbank economist Johannes Khosa said.

“However, growth in consumer spending will be contained by fragile consumer confidence and slightly higher debt-service costs,” he said.

menons@businesslive.co.za