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Johannesburg - Consumers' rating of the outlook for the South African economy has deteriorated further to the lowest level since the first quarter of 1993, according to the latest FNB/BER Consumer Confidence Index (CCI).
After recovering from -7 index points during the first quarter of 2013 to +1 in the second quarter, the FNB/BER CCI plunged to a decade low of -8 in the third quarter and remained low at -7 in the fourth.
The CCI has been losing ground since reaching a peak of +15 index points around the time of the 2010 Fifa Soccer World Cup hosted by South Africa.
Similar to the CCI readings for the first and third quarters of 2013, the CCI is presently at an even more depressed level compared to the low of -4 registered during the height of the 2008 global financial crisis.
The current level is comparable to the reading of -6 recorded in the second quarter of 2008 when an acute shortage of electricity led to a spate of power outages throughout the country.
With the average reading for the CCI at +6 since 1994, the latest index number of -7 implies that consumer confidence remains very low and not supportive of strong growth in consumer spending.
During the fourth quarter consumers’ rating of their own financial prospects improved by two index points to +8.
Their rating of the appropriateness of the present time to buy durable goods edged up by one index point, but remains low at -14.
SA's economic outlook
Even more consumers now expect the economic situation in South Africa to worsen over the next 12 months.
The economic outlook sub-index of the CCI has plunged by an alarming 38 index points since the CCI peaked in the third quarter of 2010, compared to declines of 16 index points for the financial position sub-index and 11 index points for the time to buy durable goods sub-index (over the same timeframe).
Consumers' rating of the outlook for the national economy (-15) is currently similar to the reading of -14 recorded when mines were forced to shut for five days early in 2008 to prevent the domestic electricity grid from collapsing.
"Domestic economic prospects have deteriorated further over the last year, as growth in domestic expenditure has slowed without a meaningful narrowing of the current account deficit," said Sizwe Nxedlana, chief economist of FNB.
"Industrial action in the mining, agriculture, vehicle manufacturing, construction and transport sectors has already disrupted production and exports so far this year, but may also undermine fixed investment and job creation prospects in the long run."
Nxedlana pointed out that the decline in the petrol price since October, coupled with better employment growth in the third quarter this year, may have alleviated some of the downward pressure on disposable income.
On the other hand, thousands of workers, who were on strike without pay in recent months, may now be struggling to balance their budgets.
Slight low income improvement
The survey results by household income group shows that the uptick in the financial positions index can be ascribed to a slight improvement in the financial positions of low income households (earning less than R7 000 per month) - from -2 to +2 index points.
High income consumers' rating of the outlook for their household finances remained largely unchanged (at +14) between the third and the fourth quarters of 2013.
Nevertheless, high income consumers remain decidedly more optimistic about the outlook for their household finances compared to low income households.
The majority of consumers across all income and population groups still consider the present time as inappropriate to purchase durable goods.
"Many households appear to be postponing their purchases of durable goods such as furniture and household appliances in the face of a slowdown in credit extension and the deterioration in the domestic economic climate," said Nxedlana.
A moderation in government wage growth and welfare spending, coupled with lost wages during strikes, higher household tax burdens and a slowdown in unsecured lending, has been eroding consumers’ ability to spend during 2013.
Consumers' willingness to spend
The slump in consumer confidence implies that consumers’ willingness to spend or utilize credit has also waned considerably.
Nxedlana noted that consumer confidence levels remain extremely low and are likely to translate into fairly subdued retail sales growth during the festive season.
"However, the fact that affluent consumers - accounting for the bulk of the spending power in the domestic economy - are not nearly as downbeat as low income households suggests that consumer spending will not collapse," said Nxedlana.
After recovering from -7 index points during the first quarter of 2013 to +1 in the second quarter, the FNB/BER CCI plunged to a decade low of -8 in the third quarter and remained low at -7 in the fourth.
The CCI has been losing ground since reaching a peak of +15 index points around the time of the 2010 Fifa Soccer World Cup hosted by South Africa.
Similar to the CCI readings for the first and third quarters of 2013, the CCI is presently at an even more depressed level compared to the low of -4 registered during the height of the 2008 global financial crisis.
The current level is comparable to the reading of -6 recorded in the second quarter of 2008 when an acute shortage of electricity led to a spate of power outages throughout the country.
With the average reading for the CCI at +6 since 1994, the latest index number of -7 implies that consumer confidence remains very low and not supportive of strong growth in consumer spending.
During the fourth quarter consumers’ rating of their own financial prospects improved by two index points to +8.
Their rating of the appropriateness of the present time to buy durable goods edged up by one index point, but remains low at -14.
SA's economic outlook
Even more consumers now expect the economic situation in South Africa to worsen over the next 12 months.
The economic outlook sub-index of the CCI has plunged by an alarming 38 index points since the CCI peaked in the third quarter of 2010, compared to declines of 16 index points for the financial position sub-index and 11 index points for the time to buy durable goods sub-index (over the same timeframe).
Consumers' rating of the outlook for the national economy (-15) is currently similar to the reading of -14 recorded when mines were forced to shut for five days early in 2008 to prevent the domestic electricity grid from collapsing.
"Domestic economic prospects have deteriorated further over the last year, as growth in domestic expenditure has slowed without a meaningful narrowing of the current account deficit," said Sizwe Nxedlana, chief economist of FNB.
"Industrial action in the mining, agriculture, vehicle manufacturing, construction and transport sectors has already disrupted production and exports so far this year, but may also undermine fixed investment and job creation prospects in the long run."
Nxedlana pointed out that the decline in the petrol price since October, coupled with better employment growth in the third quarter this year, may have alleviated some of the downward pressure on disposable income.
On the other hand, thousands of workers, who were on strike without pay in recent months, may now be struggling to balance their budgets.
Slight low income improvement
The survey results by household income group shows that the uptick in the financial positions index can be ascribed to a slight improvement in the financial positions of low income households (earning less than R7 000 per month) - from -2 to +2 index points.
High income consumers' rating of the outlook for their household finances remained largely unchanged (at +14) between the third and the fourth quarters of 2013.
Nevertheless, high income consumers remain decidedly more optimistic about the outlook for their household finances compared to low income households.
The majority of consumers across all income and population groups still consider the present time as inappropriate to purchase durable goods.
"Many households appear to be postponing their purchases of durable goods such as furniture and household appliances in the face of a slowdown in credit extension and the deterioration in the domestic economic climate," said Nxedlana.
A moderation in government wage growth and welfare spending, coupled with lost wages during strikes, higher household tax burdens and a slowdown in unsecured lending, has been eroding consumers’ ability to spend during 2013.
Consumers' willingness to spend
The slump in consumer confidence implies that consumers’ willingness to spend or utilize credit has also waned considerably.
Nxedlana noted that consumer confidence levels remain extremely low and are likely to translate into fairly subdued retail sales growth during the festive season.
"However, the fact that affluent consumers - accounting for the bulk of the spending power in the domestic economy - are not nearly as downbeat as low income households suggests that consumer spending will not collapse," said Nxedlana.
