Consumer confidence has plummeted to levels last seen in 1985, at the height of apartheid resistance and the country’s subsequent debt crisis.
According to FNB and Bureau of Economic Research, SA’s consumer confidence index dropped from -9 in the first quarter to -33 during the second quarter of 2020, when the nation-wide lockdown was in full force for the month of April.
Ahead of the data release, Investec economist Lara Hodes, noted that the survey would take into account the impact of the nationwide lockdown to stem the spread of Covid-19. Investec had expected consumer confidence to drop to record lows of -20 index points.
“The latest CCI reading is now only 3 index points shy of the all-time lowest consumer confidence level (of -36) recorded in 1985 – a year that was racked by violent resistance against apartheid, a partial state of emergency, then president P.W. Botha’s infamous Rubicon speech and South Africa’s subsequent debt crisis,” the report read.
The survey was conducted in the first two weeks of June, when most retail outlets were open as the country had shifted from level 4 to level 3.
The overall decline in the index can be attributed to the decline in the economic outlook, household finances outlook and time-to-buy durable goods sub-indices.
“The Covid-19 pandemic and ensuing economic restrictions had a materially negative impact on both consumers’ ability and willingness to spend.
“Millions of workers were placed on unpaid leave or reduced pay, or even retrenched, as businesses scrambled to survive the lockdown – this severely constrained household income, and therefore consumers’ ability to spend,” said FNB chief economist Mamello Matkinca-Ngwenya.
Consumers will be postponing spend on big-ticket items such as vehicles, household furniture and jewellery, given the uncertain outlook of the SA economy. The SA Reserve Bank estimated the economy to have contracted by 32.6% during the second quarter.
“Not even the cut-price specials offered by durable goods retailers or the substantial interest rate cuts by the SARB seem to be enough to entice consumers to spend their money on durable goods or expensive luxuries,” said Matikinca-Ngwenya.
Interest rates are at 50-year lows, this after the bank has introduce 275-basis points cuts since the start of the year in response to the pandemic. Another 25-basis point cut is pencilled in for the next meeting later this month. The prime interest rate is down to 7.25% – the lowest level in 55 years.
“Given the extent of the blow to consumer income and confidence, as well as the fact that coronavirus infections are now rising faster than ever before in South Africa, the retail sector is still a long way away from firing on all cylinders,” said Matikinca-Ngwenya.
Source: Lameez Omarjee – fin24