FNB and the Bureau for Economic Research at Stellenbosch University released the findings of its latest Consumer Confidence Survey.
The Survey found that Consumer Confidence had slumped to a 14-year low.
Read the full statement below:
In a quarter fraught with social unrest, political turmoil, frequent power outages and other economic headwinds, results from the 2Q2015 FNB/BER Consumer Confidence Survey show that consumer sentiment nosedived to a 14.5-year low. Having already declined from zero to -4 index points during 1Q2015, the FNB/BER Consumer Confidence Index (CCI) booked its largest drop since 2008 to reach a level of -15 in 2Q2015.
The latest index number is not only far lower than the lowest reading recorded during the 2008/09 financial crisis and recession (-6), but it is also only the second time since South Africa's first democratic election in 1994 that the CCI has dropped below -12 index points.
During 2Q2015, the financial position and time to buy durable goods sub-indices of the CCI declined by 9 and 12 index points respectively, while the economic outlook index plummeted by 14 index points. With a reading of -24, consumers' rating of South Africa's economic prospects is currently at the lowest level since the 1992/93 recession (-25 index points).
Sizwe Nxedlana, chief economist of FNB, noted that "Factors such as increased load-shedding, a further depreciation in the rand exchange rate and the tax hikes and slowdown in government spending announced in the February National Budget already weighed on consumers' rating of the outlook for the domestic economy in 1Q2015. Since the end of March, a barrage of adverse developments has now further dented consumer sentiment regarding South Africa's economic prospects. These include the explosion of xenophobic violence in Durban and Johannesburg in April, an additional 19% increase in the petrol price, higher debt servicing costs and a rising unemployment rate."
The change in labour laws at the beginning of the year that now makes it nearly impossible to hire workers in temporary positions for more than three months may also have led to a drop in temporary employment and take-home pay since the start of the year. According to Statistics South Africa, South Africa's unemployment rate hit a decade high of 26.4% during 1Q2015.
Nxedlana said that "South Africa is also currently experiencing the worst drought since 1992 - putting significant upward pressure on domestic grain prices - while electricity and fuel prices are set to rise further. As a result, the odds of interest rate hikes during the second half of 2015 have increased."
The financial position of many salary earners, social grant beneficiaries and people depending on commission have come under pressure in the wake of sustained weak economic growth, a tightening in fiscal policy, rising fuel costs and utility bills and high debt levels. Wage growth has slowed considerably, particularly for public sector employees, credit growth to households is stagnant and many households now have to curtail their current expenditure to pay for overspending in the past.
Consumer confidence levels declined sharply across all population and household income groups in 2Q2015, but the fall was particularly large for low-income households. The confidence levels of lower-middle-income households (earning between R3 000 and R7 000 per month) dropped from -2 to an all-time low of -17, while that of low-income consumers plunged from -3 to a decade low of -20 index points. Nxedlana said that "The R2,0 per litre increase in the petrol price since March and rising levels of unemployment in all likelihood weighed heavily on the sentiment of low- and lower-middle-income consumers."
Although the confidence levels of high-income[2] (-10) and higher-middle-income[3] (-13) consumers remain above that of the lower income groups, even these indices dropped to decade lows during 2Q2015. Alarmingly, high- and higher-middle-income households (the consumer group with the greatest spending power) are now much more concerned about their own financial prospects compared to the 2008/09 recession (when easy access to unsecured credit and strong growth in government employment and public sector wages underpinned spending by these income groups).
Following a temporary respite in the form of lower fuel prices, a deceleration in food inflation and a recovery in strike-affected incomes between 3Q2014 and 1Q2015, a confluence of adverse economic developments is expected to put renewed downward pressure on the spending power of households from the second half of 2015. These include tighter fiscal policy (i.e. higher personal income and indirect taxes and a moderation in government spending), rapidly rising food and fuel inflation and possible interest rate hikes.
The National Treasury has now also withdrawn its proposed reduction in Unemployment Insurance Fund (UIF) contributions that would have saved employers and employees an estimated R15bn over the next fiscal year. In addition, job creation will in all likelihood come under even more strain from the slowdown in government expenditure, low business confidence levels and continued load-shedding.
