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While 2016 will only get worse, 2017 brings hope in SA

Cape Town – South African consumers are in for tough economic times in 2016 due to the drought and the effect of an imminent ratings downgrade, but 2017 could offer some relief.

RELATED: SA consumer confidence remains low amid 'stagflation'

Sizwe Nxedlana, FNB chief economist, told Fin24 that consumers will “see the impact of the drought a bit more - on food inflation, for instance”.

“I think consumer confidence is going to hit depressed levels this year,” he said. “But over the course of next year we should see some improvement.”

After plunging from -5 index points in the third quarter of 2015 to -14 in the fourth quarter, the CCI recovered lost ground to -9 in the first quarter of 2016, FNB/BER index revealed on Tuesday.

The current shift in the El Niño pattern (resulting in the drought) to a La Niña pattern (resulting in more rain), “could mean an increase in food supply”, said Nxedlana. The positive effects on consumers would likely only be felt in 2017, he added.

AUDIO: Interview with FNB's Sizwe Nxedlana by Fin24's Matthew le Cordeur

Downgrade has been priced in

Regarding the ratings downgrade to “junk status” by Fitch, Moody’s and Standard & Poor’s that will likely occur in 2016, he said that “financial markets have priced it in” already.

He said the downgrade, which will “likely happen in December” will result in consumer confidence being negative.

“The financial markets to a large extent priced in a downgrade in December last year,” he said. “Now concerted efforts to prevent a further downgrade, but we think it is possibly too late.

“I would not foresee significant further deterioration in our bond yield in the exchange rate if the downgrade does happen, as we think it is something the financial markets have priced in.”

Extreme lack of confidence

Tuesday’s FNB/BER consumer confidence index (CCI) revealed low levels due to an “extreme lack of confidence among consumers”, said Nxedlana.

“The consumer confidence is at a level last seen in the early 90s - the last time South Africa had a double dip recession - and to levels similar to after the Asian crisis, when domestic interest rates were at 25%,” he said.

“In terms of the different types of households, what we are seeing in consumer confidence levels, is high income inequality. Low income households are saying they are struggling, while high income households are telling us they are still OK.

“The conclusion we can reach is that there are two economies in SA,” he said. “There are still people who are employed and getting above inflation wage increases.

“The problem is those who are unemployed,” he said. “They are telling us they are struggling and their cost of living is accelerating probably more than for those who are employed, i.e. higher income households.”

“So we need to grow the economy to create a better quality and increased quantity of jobs.”

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