The latest First National Bank/Bureau for Economic Research (FNB/BER) consumer confidence index (CCI) slumped back to -4 index points during the first quarter of 2015, after recovering from a decade low of -8 index points in the third quarter of 2013 to a level of zero in the fourth quarter of 2014.
The latest index number is now once again well below the long-term (since 1994) average reading of +5 for the CCI.
During the first quarter of 2015, the financial positions and time to buy durable goods sub-indices of the CCI declined slightly (both by 2 index points), but the economic outlook index dropped substantially (by 8 index points, from -3 to -11).
"With the escalation of load-shedding, consumers have understandably become more negative about South Africa's economic prospects," Sizwe Nxedlana, chief economist of FNB, said. "Apart from the intensification of the power-supply crisis over the last five months, factors such as the tax increases announced in the February national budget, an increased level of social and political turmoil and a further depreciation in the rand exchange rate against the US dollar may also have weighed on consumers' rating of the outlook for the domestic economy."
Consumer confidence levels declined across all population groups and also amongst high- and middle-income households, but improved slightly for low-income households. The confidence levels of high-income consumers (earning more than R14,000 per month) saw the largest decline during the first quarter of 2015, slumping from +3 to -6 index points.
Consumer sentiment among middle-income households (earning between R3,000 and R14,000 per month) deteriorated from +1 to -2 index points. In contrast, low-income confidence (earning less than R3,000 per month) improved from -6 to -3 index points.
"The 1.0 percentage point increase in the marginal tax rate for all individuals earning more than R181,900 per year announced in the national budget, combined with a R2,50 per litre increase in the petrol price between February and April, have dented the financial prospects of high-income consumers in particular. In contrast, low-income consumers do not pay personal income tax, and paraffin prices and taxi and bus fares did not increase nearly as much as petrol and diesel prices."
"Having said that, the domestic petrol price is still significantly lower compared to last year's peak and average levels. Despite tax increases, the real disposable income of SA households should therefore still be higher this year because of lower fuel prices and less strike-induced wage losses relative to last year," said Nxedlana.
However, the deterioration in consumer sentiment during the first quarter of 2015 signals a greater reluctance to spend and utilise credit, particularly among high- and higher-middle income consumers in South Africa. The deceleration in inflation and the recovery in strike-affected incomes will bolster the purchasing power of households - and hence retail sales volumes - during the first half of 2015, but real income growth is forecast to moderate again towards 2016 as the disinflationary impact of the lower rand oil price fades.
"Based on an assumption that, on average, the oil price will be higher and the rand will be weaker next year than it is this year; SA consumer inflation is likely to rebound in 2016. This will put renewed downward pressure on real household disposable income and on consumption expenditure growth. Moreover, the SARB is likely to increase interest rates somewhat in response to the upward trend in inflation. We also anticipate a further tightening of fiscal policy via a moderation in government spending and additional tax increases.
"This, coupled with the adverse implications of the deepening electricity-supply constraint for fixed investment, export growth and job creation prospects, as well as the impact of increasingly frequent power outages on the retail sector, implies that the medium-term outlook for household expenditure growth has therefore deteriorated," Nxedlana concluded.
