1 April 2009
South African consumer confidence rebounded in the first quarter of the year despite the global economy deteriorating further since November 2008, with the FNB/Bureau for Economic Research (BER) consumer confidence index rising by five points.
According to First National Bank (FNB) and the BER, economic growth has contracted sharply in many countries, with share prices collapsing and millions of workers losing their jobs.
“The global economy is heading for its biggest contraction since the Second World War,” First National Bank chief economist Cees Bruggemans said in a statement this week.
“Consumer confidence has dropped to record lows in the USA. In light of these developments, the increase in the [FNB/BER index] bucks the US trend.”
According to Bruggemans, a number of developments supported consumer confidence in South Africa during the survey period and partly explain the increase in consumer confidence.
This included the 150 basis point interest rate cut since December, with prospects for further declines (the survey was conducted before a further 100 basis points cut was announced on 24 March); a drop in the petrol price between November and February; the decline in inflation; a relatively stable rand exchange rate; and a confidence boosting national Budget announced on 11 February.
“The Budget was positive for households,” Bruggemans said. “Households will benefit indirectly, as the fiscal stimulus partly counters the slump in economic activity.”
The Budget included a number of measures to increase the disposable income of households directly, such as the additional R13-billion set aside for social grants and the R4.1-billion for the expanded public works programme.
“Furthermore, the personal income tax scales were adjusted to fully compensate for inflation,” he said. “However, the increase in the fuel levy will partly offset the benefit of the tax rate adjustment.”
Economy, households, durable goods
The FNB/BER consumer confidence index survey is based on three questions, namely the expected performance of the economy, the expected financial situation of households, and the appropriateness of the present time to buy durable goods (such as furniture, appliances, electronic equipment, and motor vehicles).
Despite the net percentage of consumers rating the present as an inappropriate time to buy durable goods remaining more or less unchanged relative to the fourth quarter of 2008, the net percentage expecting their own finances and the economy to improve during the next 12 months increased.
The own finances sub-index increased from +9 to +15 and the economic performance sub-index from -5 to +4.
“The reason why the own finances sub-index increased during [the first quarter of 2009] is probably because the positive impact of the interest rate cuts, lower petrol price and national budget fully countered the adverse impact of the job losses and fall in house prices,” said Bruggemans.
High debt, no credit
Possible reasons why consumers continued to rate the present as an inappropriate time to buy durable goods are their high debt burdens, increased difficulty in obtaining credit, a stock effect and the decline in residential building activity.
The low level of the time to buy durable goods sub-index indicates dismal growth in spending on durable goods, Bruggemans said, adding that credit spending would also remain weak.
“With the time to buy durable goods sub-index low and the economic performance and own finances sub-indices high, any rise in real disposable income should lead to increased consumer spending on non-durable goods and services,” he said. “Such a rise in real disposable income could happen if the positive impact of the lower interest rate and inflation continues to outweigh the negative effect of job losses.”
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