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FNB and the Bureau of Economic Research (BER) have released the latest Consumer Confidence Index (CCI), showing a strong rebound in consumer confidence following the country’s strict Covid-19 lockdowns earlier this year.
The CCI jumped 11 index points to a level of -12 in the fourth quarter of 2020, extending its third quarter gain of 10 index points.
The sudden outbreak of the Covid-19 pandemic and the subsequent severe economic constraints caused the CCI to drop from an already depressed level of -9 in the first quarter to a 35-year low of -33 during the second quarter.
This means that the ICC has made up most of the lost ground.
However, despite this increase, the latest reading of -12 constitutes the lowest holiday season CCI reading since 2015 and remains well below the +2 average CCI reading since 1994.
Rich South Africans are not optimistic
The index shows that high-income households, in particular, are not as optimistic as low-income households about their financial prospects.
While a net 17% of low-income households expect their financial situation to improve over the next 12 months, only a net 2% of high-income households and a net 4% of middle-income households expect any improvement next year.
The marked divergence in expectations about household finances helps explain why the confidence levels of low-income consumers are much less depressed compared to those of middle- and high-income households.
“The further relaxation of restrictions and the concomitant rebound in economic activity greatly benefits low-income households in South Africa, as most low-income consumers were unable to earn a living working from home,” said the chief economist from FNB, Mamello Matikinca-Ngwenya.
“Millions of low-income households would also have been relieved to learn that the expiration date for Covid-19-related social grant supplements was extended from October to the end of December 2020, while the unemployed will continue to benefit from the Grant. of Social Relief of Distress (SRD) until January 2021 “.
Combined, these Covid-19 measures add an additional R 6 to 7 billion of disposable income to poor households per month, which in turn supports the nondurable goods retail sector, where low-income consumers spend the most. part of their family budgets.
Slight drops in gasoline and paraffin prices may have also bolstered low-income sentiment somewhat during the fourth quarter, Matikinca-Ngwenya.
However, for wealthier South Africans, things are much more subdued and the impact of the virus affects it in different ways.
While the discretionary spending of wealthier consumers is also expected to rise further over the Christmas period, the size of the rally is likely to be inhibited.
This is due to the adverse impacts of the coronavirus pandemic on:
- Wages and salaries, which are lower;
- Overtime payments, which are not so abundant;
- Commissions have been truncated; and
- Year-end performance bonuses are lower than before.
“The 300 basis point drop in the prime rate since late 2019 would have helped soften the blow for indebted households, but lending rates have not fallen further since the last 25 basis point cut in July.
“In the fourth quarter, the index of time to buy durable goods continued to rebound, but the vast majority of consumers across all income groups still consider the current moment to be highly inappropriate for purchasing expensive items such as passenger cars, furniture. home and jewelry. “
The rebound in consumer confidence is good news for the South African economy as a whole, as household consumption accounts for about two-thirds of South Africa’s GDP, Matikinca-Ngwenya said.
“However, the fact that the confidence levels of wealthy consumers, the group with the greatest purchasing power, remain so depressed, points to a more moderate recovery in overall consumer spending during the fourth quarter compared to the notable jump observed in the JRC “. Matikinca-Ngwenya said.
“Sales of nondurable goods are expected to outshine other categories of consumer spending heading into the New Year, but could come under significant pressure once Covid-19-related welfare payments expire.”
Therefore, the termination of the social grant and SRD grant supplements has a significant downside risk for both the confidence levels and the purchasing power of low-income households, he said.
“The apparent resurgence of Covid-19 infections in the Western and Eastern Cape and the possible renewal of restrictions could also affect consumer confidence and hamper the pace of recovery in household spending during the first quarter of 2021.”
Read: Some nationwide lockdown restrictions in South Africa could return sooner than expected – Analysts
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