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Johannesburg - A deterioration in consumer sentiment during the first quarter of 2015 signals a greater reluctance to spend and utilise credit, particularly among high- and higher-middle income consumers in SA - that is the group with the most spending power.
This is according to Sizwe Nxedlana, chief economist of FNB in his reaction to the results of the latest FNB/BER consumer confidence survey (CCI) released on Wednesday.
Consumer sentiment deteriorated notably during the first quarter of 2015, according to the CCI and the latest index number is once again well below the long-term average reading of +5 for the CCI.
Having recovered from a decade low of -8 index points in the third quarter of 2013 to a level of zero in the fourth quarter of 2014, CCI slumped back to -4 index points during the first quarter of 2015.
During the first quarter of 2015, the financial positions and time to buy durable goods sub-indices of the CCI declined slightly, but the economic outlook index dropped substantially.
"With the escalation of load-shedding, consumers have understandably become more negative about South Africa's economic prospects," explained Nxedlana.
"Apart from the intensification of the power-supply crisis over the last five months, factors such as the tax increases announced in the February national budget, an increased level of social and political turmoil and a further depreciation in the rand exchange rate against the US dollar may also have weighed on consumers' rating of the outlook for the domestic economy."
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Broad decline
Consumer confidence levels declined across all population groups and also amongst high- and middle-income households, but improved slightly for low-income households.
The confidence levels of high-income consumers (earning more than R14 000 per month) saw the largest decline during the first quarter of 2015.
Consumer sentiment among middle-income households (earning between R3 000 and R14 000 per month) deteriorated, while that of low-income households (earning less than R3 000 per month) improved.
This is the first time since 1998/1999 - when the prime interest rate soared to 25% on the back of the East Asian financial crisis - that the CCI for the high-income group dropped below that of low-income households.
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Tax increase
"The 1.0 percentage point increase in the marginal tax rate for all individuals earning more than R181 900 per year announced in the national budget, combined with a R2.50 per litre increase in the petrol price between February and April, have dented the financial prospects of high-income consumers in particular," said Nxedlana.
In contrast, low-income consumers do not pay personal income tax and paraffin prices and taxi and bus fares - that impact the budgets of low-income households - did not increase nearly as much as petrol and diesel prices - that affect more affluent consumers using their own vehicles for transport.
"Having said that, the domestic petrol price is still significantly lower compared to last year’s peak and average levels. Despite tax increases, the real disposable income of SA households should, therefore, still be higher this year, because of lower fuel prices and less strike-induced wage losses relative to last year," he explained.
The deceleration in inflation and the recovery in strike-affected incomes will bolster the purchasing power of households - and hence retail sales volumes - during the first half of 2015, but real income growth is forecast to moderate again towards 2016 as the disinflationary impact of the lower rand oil price fades.
Nxedlana said that based on an assumption that, on average, the oil price will be higher and the rand will be weaker next year than it is this year, SA consumer inflation is likely to rebound in 2016.
This will put renewed downward pressure on real household disposable income and on consumption expenditure growth.
"Moreover, the SA Reserve Bank (Sarb) is likely to increase interest rates somewhat in response to the upward trend in inflation. We also anticipate a further tightening of fiscal policy via a moderation in government spending and additional tax increases," said Nxedlana.
"This, coupled with the adverse implications of the deepening electricity-supply constraint for fixed investment, export growth and job creation prospects, as well as the impact of increasingly frequent power outages on the retail sector, implies that the medium-term outlook for household expenditure growth has therefore deteriorated."
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