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Consumer confidence up, but outlook is bleak

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South Africa’s consumer confidence index (CPI) recovered from almost 14-year lows in the first quarter, but remained in negative territory as the economic growth outlook remained bleak, a survey showed.

The index signalled that consumer confidence remained depressed. It registered minus 9 in the first quarter from minus 14 in the fourth quarter, said First National Bank (FNB) and the Bureau for Economic Research, who compiled the report. The index had fallen to minus 15 in the second quarter of last year, its lowest in 14-and-a-half years.

Sizwe Nxedlana, the chief economist at FNB, said the economy was in the grip of stagflation. A dictionary definition of stagflation is an inflationary period accompanied by rising unemployment and lack of growth in consumer demand and business activity.

Nxedlana said real economic growth deteriorated to a mere 0.3 percent year on year during the fourth quarter of 2015, while the consumer inflation rate increased from 4.6 percent in September to 7 percent in February.

Sentiment
He said adverse developments, such as the slump in international commodity prices and political turmoil, low business confidence levels, a severe drought, soaring food prices and rising interest rates, continued to weigh down domestic economic growth and job creation prospects.

Nxedlana said, however, there had also been some positive developments in recent months, which helped to explain the improvement in consumer sentiment regarding the outlook of the South African economy and household finances.

He said the slight recovery was helped by the end of power cuts and a fall in fuel prices between October 2015 and March 2016, among other things. The Reserve Bank has raised benchmark lending rates by a total of 200 basis points in the last two years as it fights accelerating consumer prices triggered by a depreciating currency, drought and above-inflation wage hikes.

“Given that the heydays of easy access to unsecured credit, extraordinarily low interest rates and strong growth in public sector employment and wages are now behind us, we expect the growth in real consumer spending to slow further during 2016,” Nxedlana said.

Data last Thursday showed the economy was picking up in the past two months, but analysts said global economic weakness and domestic political tensions could make the reprieve short-lived.

President Jacob Zuma survived an impeachment vote and has faced calls to step down after the Constitutional Court ruled that he had breached the constitution by ignoring a directive to repay some of the state money spent on renovating his home. The Treasury has said political upheavals will not divert the government’s attention from implementing growth policies.

Kamilla Kaplan, an economist at Investec, said the FNB/BER index was conducted over a period from February 25 to March 22 and captured the effects on sentiment of the further two interest rate hikes implemented in the first quarter of this year.

“The Reserve Bank’s hawkish policy stance suggests that the repo rate is likely to rise further over the coming MPC (monetary policy committee) meetings,” she said.

Kaplan said the consequent increase in debt servicing costs, at a time when general living costs were rising, would impact consumers’ ability to take on more debt to finance consumption.

Moreover, during the second half of 2015 there was a renewed tightening of lending criteria applied to households.

* With additional reporting by Reuters

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