File picture: Karen Sandison, ANA
MOMENTUM Investments has warned that South African consumers could face a prolonged period of dwindling disposable cash, as sentiment remains weak across all income groups due to bleak economic conditions.
In the Consumer Pulse report on Monday, Momentum also forecast that consumption expenditure would shrink by more than half this year on the back of weak job creation.
This comes as the South African Reserve Bank (SARB) is expected to hike its benchmark lending rate by a further 25 basis points on Thursday to curb inflation, which rose from 6.9% to 7.0% in February.
This would be the ninth consecutive rates hike since November, 2021 and would bring the repurchase rate up to 7.5% from 3.5% in November, 2021, lifting the cost of borrowing as the prime lending rate to 11%.
Momentum economist Sanisha Packirisamy said data had shown that the root cause of weaker consumer sentiment was the deterioration in disposable income, which resulted in consumers not being able to comfortably meet all their debt obligations and save.
Packirisamy said a large segment of South Africa’s consumer base had not yet recovered from the job losses in 2020, which worsened the already high structural unemployment.
She said low-income earners were also on the back foot because less credit was granted to them, and the recovery in their income-levels has not kept pace with that of high-income earners.
“A pedestrian growth outlook was unlikely to positively impact consumer confidence and consumption expenditure in any meaningful way,” Packirisamy said.
“Elevated interest rates will continue to dampen consumers’ appetite for credit, suggesting muted support for household consumption from a further accumulation in debt.”
Packirisamy said that as a result, prevailing economic conditions were unfavourable for consumption expenditure.
Therefore, we still hold the view that growth in household consumption expenditure will remain weak at 1.4% in 2023 and increase only slightly to 1.7% in 2024 as inflation and interest rates moderate.”
Momentum’s report comes on the back of the FNB/BER Consumer Confidence Index (CCI) last week which showed that consumer sentiment dropped significantly to -23 points in the first quarter of 2023.
According to the Bureau for Economic Research (BER), the electricity crisis and concerns about the high cost of living hurt sentiment as the country experienced 205 hours of load shedding at an average intensity of Stage 4 between February and March, when the survey was conducted.
The dampened consumer demand was also confirmed yesterday by the BER’s Trade Survey for the first quarter of 2023, which suggested a sector under pressure.
The survey showed downward trends in retail, wholesale, and motor trade which often indicates constraints on household spending, increased spending on other services like restaurants, transport, and real estate or higher savings due to a perception of a riskier environment.
The BER said retail respondents were now less confident than they have been on average since 2009, with confidence dropping from 42% to 34% in the first quarter of 2023.
This brings retail confidence 6% points below the long-term average.
BER senior economist Helanya Fourie said that various factors caused these trends.
Fourie said while it was common for the first quarter of the year to have weak sales compared to the festive season, retailers were expecting lower sales this quarter than in the first quarter of last year.
“Consumers are pinched by high inflation – especially high food prices, hurting the sale of non-durable goods – and an elevated interest rate heavily impacting the sale of durable goods,” Fourie said.
“Consumer confidence is at levels last seen amid the Covid-19 pandemic and in the second quarter of 2022 when deadly floods devastated KwaZulu-Natal, and the economic effects of the Ukrainian war started to manifest. In addition, retailers are trying to mitigate load shedding,” she said.
– BUSINESS REPORT