Surprise consumer confidence rebound in South Africa

The FNB/BER Consumer Confidence Index (CCI) recovered from -20 to -8 index points during the fourth quarter of 2022 after plunging to -25 index points during the second quarter.

The latest reading brings the CCI in line with the level attained during the fourth quarter of last year and the fourth quarter of 2019, just before the Covid-19 pandemic.

A reading of -8 still signifies depressed consumer sentiment, but the scope of the rebound relative to the third quarter is a surprise.

Sustained high inflation, frequent load-shedding, successive large interest rate hikes, and the worsening global economic backdrop were expected to hurt consumer confidence.

The rebound in consumer sentiment shows an improved willingness to spend among consumers relative to the second and third quarters of 2022.

However, consumers’ ability to spend would also need to improve to translate into a significant increase in household consumption.

Sharp interest rate hikes and sustained high food inflation would have muted some of the positive impacts of higher employment growth and lower fuel prices during the fourth quarter.

“The improvement in consumer sentiment is positive news for the economy and suggests that household consumption expenditure is holding up,” said Mamello Matikinca-Ngwenya, chief economist at FNB.

“It seems likely that the services sector, particularly restaurants, transport, recreation, and tourism-related services, will be the main beneficiary.”

The retail sector is expected to underperform relative to the 2021 festive season.

All three sub-indices of the CCI rebounded during the fourth quarter.

The economic outlook and time-to-buy durable goods sub-indices of the CCI improved by 12 and 11 index points, respectively. However, they remain deep in negative territory.

Most consumers still expect a deterioration in South Africa’s economic prospects over the next year and consider the present time inappropriate to purchase durable goods.

The CCI household financial outlook sub-index jumped 15 index points to reach +13 during the fourth quarter, a similar reading compared to the +14 reached during the 2021 festive season.

Most households expect an improvement in their finances over the next 12 months, despite being quite pessimistic about the outlook for the national economy.