There is currently a large disconnect between SA consumers’ sky-high expectations for domestic economic growth – and related household income growth – and the actual sub-par performance of the SA economy, shows the latest FNB/BER Consumer Confidence Index (CCI) released on Tuesday.
The CCI report states that this is against the background of the change in SA’s political leadership in December 2017 creating great optimism.
“These elevated consumer expectations may also partly explain the spate of service delivery protests and high wage hike demands during the first half of the year. Should actual economic growth, and hence the financial positions of households, fail to improve in line with consumers’ lofty expectations, frustrations will likely grow and dissatisfaction may set in,” the CCI report states.
Consumers seem to remain staunchly optimistic that the South African economy and their own household finances will improve markedly over the next year, but unfortunately these expectations do not reflect the current economic reality, confirms Mamello Matikinca, chief economist of FNB.
He commented on the findings of the latest FNB/BER CCI.
After skyrocketing from -8 index points to an all-time high of +26 during the first quarter of 2018, the FNB/BER CCI shed only 4 index points to reach +22 in the second quarter. This almost equals the previous record high of +23 index points reached in the first quarter of 2007 when real economic growth peaked at nearly 6%.
The latest FNB/BER CCI shows that consumer confidence in SA remained quite high despite a generally weak SA economy and a significant drop in business confidence levels during the second quarter, the CCI report points out.
“Although the seeds of an economic recovery were planted with President Cyril Ramaphosa's ‘new dawn’ and pledge to eradicate the scourge of corruption, further investor-friendly reforms are urgently needed to boost economic growth and household income,” cautioned Matikinca.
“Although the elevated consumer confidence level suggests that consumers remain most willing to spend their money, this does not necessarily imply that actual consumer spending remained robust during the second quarter. Household income levels and/or access to credit would have had to improve in conjunction with the positive sentiment to see strong household expenditure growth during the second quarter.”
The CCI report explains that soaring petrol prices, rising taxes and the pedestrian pace of real economic growth are now likely constraining after tax income growth in South Africa. The fall in the time-to-buy-durable-goods sub-index of the CCI also points to greater apprehension among consumers to spend their money on big-ticket items currently.
Matikinca noted that there is currently a striking divergence between extraordinarily high consumer confidence levels on the one hand and relatively low business confidence and generally weak economic growth in SA on the other hand. In particular, the two forward looking sub-indices of the CCI – the economic outlook and household financial prospects indices - soared to record highs during the first quarter and remained steadfast during the second quarter.
The CCI report states that the consumer confidence contrasts sharply with the latest economic data that points to dismal actual economic growth during the first half of 2018. The improvement in business confidenceduring the first quarter was also more modest compared to the resurgence in consumer sentiment, and business confidence sagged back notably during the second quarter.* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.