Consumer confidence still in the doldrums – index

Cape Town - Consumer confidence for the fourth quarter of 2017 remained negative, registering below the zero mark for the third consecutive year.

The FNB/Bureau of Economic Research (BER) Consumer Confidence Index (CCI) for the final quarter of 2017, which was released on Wednesday, was -8. This is a slight improvement from the -9 recorded in the second quarter. No survey was conducted in the third quarter. The survey was conducted between October 28 2017 and December 4  2017, ahead of the ANC elective conference.

The index has averaged at +4 since 1994, but readings have been within the -3 and -15 range since 2015. “The latest reading of -8 means that the CCI has now been below the zero mark for three consecutive years, the longest uninterrupted negative streak since the survey started in 1982,” the report read.

The report further indicates the low consumer confidence levels point to a low willingness to spend among consumers.

Improved expectations for economy

However, consumers have an improved rating for South Africa’s expected economic performance for the next 12 months, which contributed to the marginal improvement in the index.

 “The improvement in consumer sentiment regarding South Africa's economic prospects correlates with the stronger-than-expected rebound in real GDP growth during the second and third quarters of 2017," said FNB’s senior economic analyst Jason Muscat.

• READ: GDP surprise: SA economy grows 2% in third quarter

The report indicates that analysts expect an improvement in economic growth in 2018, despite the credit rating downgrade to junk by Standard & Poor’s in November 2017, and the “depressing outlook” of Finance Minister Malusi Gigaba’s mini-budget.

Bleak outlook for government finances

"The bleak outlook for government finances remains one of the greatest risks to consumer spending in 2018.

“With a revenue shortfall of R50bn projected in the MTBPS and government debt now expected to reach 60% of GDP by 2020, we expect further substantial increases in personal income taxes and indirect taxes, as well as cuts in government spending in the February 2018 budget,” said Muscat.

Higher taxes will constrain spending of both middle and high-income households, he explained.

• READ: March rate cut hinges on budget, persistent rand strength

But Muscat noted the recent rand rally, which would put downward pressure on inflation and bolster the purchasing power of households.

“Bar a sovereign credit ratings downgrade by Moody's at the end of March 2018, this might even open the door for the SARB to implement another interest rate cut in the middle of the year."

Investec Chief Economist Annabel Bishop believes an early exit for President Jacob Zuma could see the rand strengthen to R11.70/$. The rand could steadily move to R11 to the greenback if Ramaphosa takes over the presidency, provided he can implement free market reforms to avoid further credit downgrades, eradicate corruption and drive economic growth, she explained. 

Household credit extensions also appears to be improving. The optimism following Ramaphosa being elected ANC president could translate into consumers buying more durable goods, Muscat explained.

• READ: Ramaphosa arrives in Davos on wave of optimism as renewal beckons

“Coupled with a sustained recovery in credit extension and lower prices for imported durable goods on the back of the stronger rand, the outlook for durable goods sales volumes in particular has improved," he said.  

But Muscat is also of the view that further fiscal policy tightening would impact any recovery in household expenditure. Overall, growth in consumer spending is expected to improve in 2018.