South African consumer confidence recovers in the first quarter, but remains low

The First National Bank (FNB) / Bureau for Economic Research (BER) Consumer Confidence Index (CCI) rebounded to -9 in the first quarter 2016 from a multi-year low of -14 in the fourth quarter 2015, but the first quarter 2016 reading remains well below the long-term average reading of +5 for the CCI, and is lower than the lowest reading recorded during the 2008/09 recession of -6.

A low level of confidence indicates that consumers are concerned about the future. They may be worried about job security, pay raises and bonuses. With such a frame of mind, consumers tend to cut spending to basic necessities (e.g. food and rent) to free up income for debt repayment. If confidence is high, consumers tend to incur debt (or reduce savings) and increase spending on discretionary items, such as furniture, household equipment, motor vehicles, clothing and footwear. Some of these items are often financed on credit. Spending on these items declines when confidence is low, as households can generally delay their purchase without experiencing an immediate deterioration in living conditions.

A rise in consumer confidence reflects an increased willingness of consumers to spend. However, this willingness only translates into actual sales if consumers’ ability to spend improves. Their ability to spend depends on their inflation adjusted after-tax income and the availability of credit. A rise in consumer confidence could therefore result in an upturn in household consumption spending in general and retail and motor vehicle sales in particular. The opposite applies when the level of consumer confidence declines.


The slight improvement in consumer confidence was due to the resilience in consumers’ rating of their own financial positions and an improvement in the rating of the economic outlook from record lows.

The financial position sub-index of the CCI improved to +10 from +4, while the economic outlook index rebounded to -14 from a 22-year low of -24. However, the time to buy durable goods index declined further to -22 from -21.

Most consumers therefore still believe that South Africa’s economic prospects will deteriorate further over the next year and that it is not a good time to buy durable goods, but a small majority is hopeful that their own household finances will improve.


The resilience in the rating of financial positions is driven largely by higher income households as high income households have been the most confident over the past five years. This has mainly been due to high income households persistently reporting the highest levels of confidence in their own personal financial prospects, even though they take a dim view of South Africa’s economic prospects. By contrast, low income households have recorded the lowest levels of overall confidence and the lowest levels of confidence with respect to the outlook for the economy and their own finances as they are most at risk of losing their jobs when firms cut costs to ensure their survival.

Statistics South Africa data shows that the nominal increase in the year-on-year (y/y) growth of the gross operating surplus of firms is at multi-year lows, which is one of the reasons why firms are cutting back on staff and delaying capacity expansions.


According to Sizwe Nxedlana, chief economist of FNB, the South African economy is in the grip of stagflation, which is a situation of stagnant economic activity and high inflation.

“To be sure, 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  continue to weigh down domestic economic growth and job creation prospects. However, there have also been some positive developments in recent months which help to explain the improvement in consumer sentiment regarding the outlook for the SA economy and household finances. These include the (supposed) end of load-shedding, an 87 cents drop in the petrol price between October 2015 and March 2016 and the respite in student protests over tuition fees that weighed heavily on consumer confidence levels during the fourth quarter 2015,” said Nxedlana.

Nxedlana pointed out that the reappointment of Pravin Gordhan as the Finance Minister, followed by a well-crafted February national budget, prevented consumer sentiment from deteriorating further.

This recovery was helped by the rebound in the JSE All share index (from around 47 000 index points in mid-January to 53 000 during mid-March) and the appreciation in the rand exchange rate against the US dollar (from roughly R16.80/US$1 in mid-January to closer to R15/US$1 in March). These twin factors will have improved the confidence levels of high income consumers.

Despite the slight recovery in the CCI in the first quarter, consumer confidence remains exceedingly depressed, pointing to a low willingness to spend and use credit among households with the National Credit Regulator data showing that the number of applications for credit decreased by 4.5% from 11.85 million in the third quarter to 11.32 million in the fourth quarter. The total outstanding consumer credit balances as at December 2015 was R1.64 trillion, representing an increase of 3.5% y/y, which is below the December 2015 inflation rate of 5.2% y/y.

Prospects for the second quarter do not look good as the petrol price was hiked by 83 cents per liter on 6 April and the JSE All Share index lost significant ground again, while food prices are set to rise much more on the back of the devastating drought, which will adversely affect the purchasing power of low and middle income households in particular.

“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,” said Nxedlana.

South Africa’s weak growth performance was also likely to be a key factor in determining the outcome of the current review of South Africa’s foreign currency sovereign rating by the ratings agencies, which would make pronouncements in June. The country’s rating was at risk of being lowered to sub-investment or junk status. Policy uncertainty and politicking ahead of the 3 August local government elections may affect the implementation of growth-supportive policies. The World Bank said government seemed to be taking serious steps to deal with debt levels and to moderate spending, but indicated that growth remained the “big unknown”.

President Jacob Zuma, who turned 74 on 12 April 2016, wished for an improvement in growth.

“My birthday wish is to see South Africa increasingly becoming a better place for all. I wish for our country to continue working together to address our common challenges, particularly in this difficult economic climate of joblessness; rising fuel and food prices and high levels of poverty and inequality. It is only through our unity as South Africans that we will be able to overcome the current challenges and build a prosperous South Africa”, said President Zuma.

In recent years, so as to better understand and manage the effects of policy uncertainty on their economies, countries such as the United States, United Kingdom, Germany, France, India and China have devised ways of measuring such uncertainty, using a range of indices.

To enable South Africa to follow this important global trend, the North-West University School of Business and Governance (NWU-SBG) and the School of Economics have joined forces to develop a ‘Policy Uncertainty Index’ which will help to throw light on the effects of an opaque policy environment on macro-economic performance, and how political and social agendas have influenced the policy-making process in the country.

Policy uncertainty is not a new phenomenon. Yet it is certainly featuring more prominently in the global conversation about why certain countries with clear potential are delivering lackluster economic performance and facing diminishing growth prospects. South Africa is one such underperforming country, which has prompted a slew of opinions regarding the extent to which growing policy uncertainty in the country has unnerved investors and suppressed business activity.

An increase beyond 50 would reflect greater policy uncertainty while a decrease below 50 would reflect less policy uncertainty, so the rise to 55.4 in the fourth quarter 2015 from a base of 50 in the third quarter was a reason for concern. The main reason for the increase in policy uncertainty was the unexpected removal in mid-December 2015 of Minister Nhlanhla Nene as Minister of Finance and his replacement initially by David van Rooyen, and then subsequently by a reappointed Pravin Gordhan after a huge public outcry and severe disruption in financial and other markets. These events meant that policy uncertainty escalated. Although the return of Minister Gordhan has now fortunately partly assuaged the markets and business, trust and confidence still need to be fully restored.

South Africa has weathered the 2008/10 Great Recession better than most economies due in part to lessons learnt from previous crises, which is why its financial system is rated amongst the most stable in the world. Unfortunately weather-related problems such as the 2015/16 drought remain outside the central bank’s  power, so it can do little to moderate food or energy prices, while it notes that although capital flows to emerging markets remain strong over the medium term, short-term flows have in recent months been volatile due to the heightened uncertainty caused by political developments.

The Institute of International Finance said emerging markets in March 2016 enjoyed the strongest month of portfolio inflows since June 2014. That is one of the reasons why the rand strengthened against most currencies in the month.