South Africa’s middle class is at breaking point

South African consumer confidence fell in the third quarter as middle-income household finances came under strain amid higher personal income taxes and the fading impact of early pension fund withdrawals. 

A quarterly index measuring consumer sentiment declined to -13 in the three months through September from -10 in the previous quarter, FirstRand’s FNB said in an emailed statement on Thursday.

In the May budget, the National Treasury didn’t adjust personal income tax bands for inflation, augmenting revenue via so-called bracket-creep.   

“Weak job creation, rising inflation and dwindling two-pot funds have likely started to weigh on the confidence levels of the middle class,” said FNB Chief Economist Mamello Matikinca-Ngwenya.

The two pot system introduced last year allows savers early access to a portion of their retirement funds without penalties.

Ford, Glencore and ArcelorMittal are among companies that have recently announced plans to cut thousands of jobs in South Africa.

Solidarity, a labour union, has said the knock-on effects of the layoffs could affect as many as 250,000 jobs and called for President Cyril Ramaphosa to convene a crisis meeting of all “role players” to prevent further job cuts.

Matikinca-Ngwenya warned that waning consumer confidence will likely translate into a more pronounced slowdown in real household expenditure growth toward the final quarter of the year.

“In the absence of further interest rate cuts and a bounce-back in job creation, higher food inflation will erode the purchasing power of middle- and low-income consumers in particular,” she said.

Household consumption expenditure accounts for about two-thirds of South Africa’s economic activity.