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South African consumer confidence plunged in the first quarter as intense power outages hamstrung economic activity and stoked food-price inflation.
A quarterly index measuring sentiment fell to -23 in the three months through March from -8 in the previous quarter, First National Bank said in an emailed statement Thursday. That’s the lowest level since the second quarter of 2022, when deadly floods wrought havoc in the eastern KwaZulu-Natal province and the impact of the war in Ukraine started to manifest, the bank said.
South Africa is suffering from an energy crisis, with state utility Eskom implementing blackouts, known locally as load shedding, on all but one day this year. While the outages are needed to protect the grid from collapse when the company’s aging plants can’t meet demand, they’re sapping economic growth. On Wednesday, the International Monetary Fund cuts its 2023 economic growth forecast for South Africa to 0.1%.
"The alarming increase in power outages since December and the concomitant deterioration in South Africa’s economic prospects no doubt rocked consumer sentiment during the first quarter," said Mamello Matikinca-Ngwenya, FNB’s chief economist. "Spiraling food prices, another interest-rate hike and a sharp depreciation in the rand exchange rate likely added insult to injury."
Rocked by the intensifying electricity crisis and cost-of-living concerns, the FNB/BER Consumer Confidence Index (CCI) plunged to -23 index points during 2023Q1, from -8 index points during 2022Q4. pic.twitter.com/AiyPKGppxt— Hugo Pienaar (@hugopien) March 23, 2023
Food-price inflation in the first two months of the year quickened to levels last seen in 2009. That’s as the power cuts disrupt the production and storage of goods and pose a threat to food security.
Data shows sentiment across income groups is deeply negative. Confidence among high-income households that earn more than R20 000 per month declined the most, suggesting that wealthy consumers are especially worried about the outlook for the economy, the Johannesburg-based lender said.
While sentiment among the middle-income and least-affluent consumer group that earns less than R5 000 also declined, its likely that “job creation in the still-recovering services sector may have softened the blow,” Matikinca-Ngwenya said.
The drop in sentiment suggests consumers are less willing to spend and foreshadows a significant slowdown in consumer spending growth, she said. “The fact that high-income confidence declined the most is doubly alarming for the outlook for household expenditure, as affluent consumers also have the greatest spending power.”
Household consumption expenditure accounts for about two-thirds of GDP.