South African consumers bounce back

South African consumers have shown an uptick in confidence, which bodes well for the outlook for consumer spending for the remainder of the year.

The FNB/BER Consumer Confidence Index (CCI) jumped from -10 to -5 index points in the third quarter of 2024, recording its second consecutive 5-point increase for the highest CCI reading since 2019.

Although the latest reading remains somewhat below the long-term average of the CCI, the reading of -5 is the highest that confidence has been since the first half of 2019, before the global outbreak of the Covid-19 pandemic. 

The 10-point jump in the CCI over the last six months signals a pronounced improvement in consumers’ willingness to spend and bodes well for the outlook for consumer spending for the remainder of the year.

The second-quarter increase in the CCI was primarily driven by a major improvement in the index’s economic outlook sub-index on the back of the cessation of load-shedding.

However, the third-quarter uptick in the CCI can mainly be ascribed to a marked increase in the index’s household financial outlook sub-index and a further improvement in the sub-index measuring the appropriateness of the present time to buy durable goods. 

The household finances sub-index of the CCI increased from 8 to 14 index points during the third quarter – the highest reading since the fourth quarter of 2021. 

After edging up from -30 to -28 in the second quarter, the time-to-buy durable goods sub-index of the CCI improved further to a two-year high of -23 in the third quarter.  

The economic outlook sub-index of the CCI, in turn, extended its 13-point second-quarter surge by another two points to reach -7 in the third quarter.

A breakdown of the CCI per household income group shows that the third-quarter increase in overall confidence was driven by much-improved sentiment among high-income households, as well as a further uptick in middle-income confidence. 

Having slumped from -14 to -16 at the time of the second quarter survey, the confidence levels of high-income households – in this index, this refers to South Africans earning more than R20,000 per month – rebounded to a five-year high of -6 in the third quarter. 

The confidence levels of middle-income households – those earning between R5,000 and R20,000 per month – improved to -4 during the third quarter after leaping from -17 to -9 in the previous quarter. 

“A confluence of positive developments has bolstered the confidence levels of South Africa’s more affluent consumers over the last six months,” FNB chief economist Mamello Matikinca-Ngwenya said. 

“These include the formation of a government of national unity, the absence of load-shedding, a stronger rand exchange rate, substantial fuel price declines, a deceleration in inflation and expectations of interest rate cuts in coming months.” 

“Moreover, the implementation of the two-pot retirement system on 1 September now allows consumers access to a portion of their retirement savings, which will no doubt hearten households experiencing financial distress.”

The confidence of low-income households – those earning less than R5,000 per month – soared from -17 to -4 index points during the second quarter. This group posted the largest increase of the three income groups but slipped back slightly to -7 during the third quarter.

The difference in consumer confidence between income groups can be seen in the graph below.

“Although the termination of load-shedding, the deceleration in food inflation and substantial fuel price cuts would also have buoyed the confidence levels of less affluent consumers in recent months, low-income households are less likely to have pension funds and debt that is tied to the prime interest rate,” Matikinca-Ngwenya explained. 

“Prospects of interest rate cuts and the implementation of the two-pot retirement system would, therefore, be less beneficial to low-income consumers.”

The five-point uptick in consumer confidence during the third quarter marks the third consecutive increase in consumer sentiment this year, propelling the CCI from an average of -20 in 2023 to a five-year high of -5. 

This signals a striking improvement in consumers’ willingness to spend. The deceleration in inflation, the introduction of the two-pot retirement system, and a strong likelihood of an interest rate cut by the end of September will also bolster real disposable income and, therefore, consumers’ ability to spend. 

This bodes well for the outlook for real consumer spending during the remaining months of the year, with durable goods consumption, in particular, standing to benefit from the rise in confidence, the implementation of the two-pot retirement system and expected interest rate cuts.

FNB/BER Consumer Confidence Index