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Consumer confidence improves

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08 Aug 2013

Consumer confidence levels improved across all income and population groups, reveals the FNB/BER Consumer Confidence Index (CCI) which shows that having slumped from -3 index points during Q4 2012 to a 9 year low of -7 in Q1 2013, the CCI rebounded to +1 in  Q2 2013.

Middle and high income consumers are notably more optimistic about the outlook for their household finances and less concerned about the appropriateness of the present time to buy durable goods compared to low income consumers, according to the index.

The rise was larger and the actual levels remain higher for middle and high income consumers compared to the low income group (earning less than R2 000 per month).

Middle and high income consumers are notably more optimistic about the outlook for their household finances and less concerned about the appropriateness of the present time to buy durable goods compared to low income consumers, according to the index.

According to Sizwe Nxedlana, chief economist at FNB, Q2 2013 level of consumer confidence is still well below the post apartheid average of +6 index points, signalling a significant moderation - but not a collapse - in household spending.

Nxedlana says the index is typically a good indication of consumers’ willingness to spend or use credit, while disposable income growth and their access to credit determine their ability to spend.

“The improvement in the CCI in Q2 2013 suggests an increased willingness among consumers to spend and helps to explain the improvement in retail and car sales in recent months.

“However, in order for the rise in consumer confidence levels to translate into a more permanent improvement in household consumption expenditure, there also needs to be a sustained recovery in real disposable income growth and household credit extension.”

He points to factors such as record high fuel prices, rising food inflation, muted job creation and slower growth in government spending as likely to continue to weigh down income and credit growth.

Nxedlana adds that the combination of a slowdown in real disposable income growth and a moderation in credit extension will likely continue to weigh on consumer confidence levels and keep a firm lid on the growth in real consumer spending in the third quarter of 2013.

“High unemployment levels and soaring fuel prices are weighing on the financial positions of low income consumers in particular, implying that the deceleration in consumer spending could be more pronounced for low income households compared to the high income groups,” points out Nxedlana.

The FNB/BER CCI combines the results of three questions posed to adults in South Africa between 7 June and 8 July 2013, namely the expected performance of the economy, the expected financial position of households and the rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.

Consumers’ rating of the prospects for their household finances and the appropriateness to buy durable goods each improved by 9 index points, while the economic outlook sub-index of the CCI edged up by 6 index points.

“Economic conditions remained challenging during the second quarter, however, the worst case scenario has not transpired.

“Furthermore, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months,” he says.

According to Nxedlana, the fact that consumer inflation has remained relatively contained up until now, in the face of the dramatic depreciation in the Rand exchange rate over the last 18 months, has also been a positive development.

He says the Rand has depreciated by close to 30 percent against the US dollar since the first quarter of 2012, while the CPI inflation rate was 5.5 percent in June 2013 (below the 6 percent upper edge of the South African Reserve Bank’s inflation target).

Nxedlana adds that the combination of a slowdown in real disposable income growth and a moderation in credit extension will likely continue to weigh on consumer confidence levels and keep a firm lid on the growth in real consumer spending in the third quarter of 2013. –Denise Mhlanga

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