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Consumer confidence nosedives

Cape Town - Consumer confidence took a nosedive in the second quarter of 2015 as reflected in the latest FNB/BER Consumer Confidence Index (CCI) for the period, which recorded its largest drop since 2008.

Consumer confidence levels declined sharply across all population and household income groups in the second quarter, but the fall was particularly large for low-income households.

In the first quarter of 2015 the index was down from zero to -4 index points and down to -15 index points in the second quarter. At -25 index points, consumers' rating of South Africa's economic prospects is currently at the lowest level since the 1992/1993 recession.

Although the confidence levels of high-income and higher-middle-income consumers remain above that of the lower income groups, even their confidence levels dropped to decade lows during the second quarter.

Sizwe Nxedlana, chief economist of FNB, told Fin24 that high income groups have in prior indices indicated their worry about the economy and that now is not a good time to buy durable goods, but their rating of their own personal finances has been quite positive up to now.

"High income consumers still indicate a lack of willingness to spend, but its more because of concern about their environment than about them struggling financially," said Nxedlana.

"We have had a strong boost to disposable income from the oil price, but even that did not do much for consumer confidence. We think inflation has now bottomed and could invite one or two interest rate hikes."

He said  it would seem that Government's attempt to tighten its belt as well as curb its spending is beginning to bite into consumers' ability to spend.

The index further shows that high- and higher-middle-income households - the consumer group with the greatest spending power - are now much more concerned about their own financial prospects compared to the 2008/2009 recession.

READ: Significant drop in consumer confidence - index

According to Nxedlana, consumers had to face challenges like frequent load shedding and even political turmoil in the second quarter.

This is after they already had to deal with issues like load-shedding, a further depreciation in the rand exchange rate and tax hikes and a slowdown in government spending in the first quarter of 2015.  

"We had some optimism about possible improved household spending because of the lower petrol price and no severe strike so far this year. But the numbers are now telling us we should curb that enthusiasm and can expect weaker numbers the rest of the year," Nxedlana told Fin24 on Thursday.

"Consumers are telling us they are most bearish about the economy. What tends to happen then is they are likely to postpone discretionary spending and not make big financial decisions."

He said the latest index number is not only far lower than the lowest reading recorded during the 2008/2009 financial crisis and recession (-6), but it is also only the second time since South Africa's first democratic election in 1994 that the CCI has dropped below -12 index points.

"Since the end of March, a barrage of adverse developments has now further dented consumer sentiment regarding South Africa's economic prospects. These include the explosion of xenophobic violence in Durban and Johannesburg in April, an additional 19% increase in the petrol price, higher debt servicing costs and a rising unemployment rate," he said.

READ: Consumer confidence edges up

The CCI also consists of sub-indices. Of these, the economic outlook sub-index plummeted by 14 index points, while the financial position sub-index declined by 9 index points and the "time to buy durable goods" sub-index was down 12 index points.

In Nxedlana's view the change in labour laws at the beginning of the year that now makes it nearly impossible to hire workers in temporary positions for more than three months may also have led to a drop in temporary employment and take-home pay since the start of the year.

According to Statistics South Africa, South Africa's unemployment rate hit a decade high of 26.4% during the first quarter of 2015.

South Africa is also currently experiencing the worst drought since 1992 and this is putting significant upward pressure on domestic grain prices. On top of that electricity and fuel prices are set to rise further, increasing the odds of interest rate hikes during the second half of 2015.

Real consumer spending is, therefore, unlikely to grow faster than 2% during 2015, well below the average annual growth rate of nearly 4% recorded over the last decade, according to Nxedlana.

ALSO READ: Consumers pushed to knife's edge

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