South Africa’s retailers, who usually make good money during the festive season, might not smile all the way to the bank this year as the consumer confidence heading to the busy season is at its lowest ebb in 20 years.
FNB, which conducts the country’s most authoritative consumer confidence index (CCI) in collaboration with the Bureau for Economic Research, found that consumers are dreading this festive season as record high interest rates and cost of living obliterated disposable income.
FNB chief economist Mamello Matikinca-Ngwenya said the CCI’s poor reading in the fourth quarter of the year suggests that consumers will keep tight
control over their purse strings during the holiday shopping season, which should, in particular, worry retailers of expensive luxury goods.
“The low festive-season consumer confidence reading signals that consumers are not in a jolly, high-spending mood. Sales of big-ticket discretionary goods, and especially interest-rate sensitive goods, will likely under- perform relative to previous holiday shopping periods,” Matikinca-Ngwenya said.
“However, the fact that the low CCI reading largely stems from consumers’ very negative perceptions about the outlook for the national economy – and to a lesser extent from pressure on their household finances – this offers some hope that the all-important Christmas gift-giving period will not be a complete whitewash for retailers. Essentials, value-for-money products and affordable luxuries will be at the top of shopping lists.”
A rise in consumer confidence has historically reflected 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.
Consumers have endured a torrid few years as the Reserve Bank increased the cost of credit by a whopping 475 basis point since November 2021, to the current 14 year high of 8.25%. The latest results from big banks show that a vast majority of consumers are struggling to keep up with loan repayments, particularly personal loans, mortgages and car finance.
Banks have responded by tightening their lending criteria.
“High interest rates and a marked deterioration in South Africa’s fiscal position are likely worrying high- and middle-income consumers. In its November medium-term budget policy statement, the National Treasury said it would introduce additional measures to raise tax revenue and cut real government spending next year, which will adversely affect the disposable income of high- and middle-income consumers in particular,” Matikinca-Ngwenya said.
