South African holiday shopping to rise as consumer confidence climbs

Shopping activity in South Africa is expected to increase slightly this festive season on the back of easing inflation rates, borrowing costs and early retirement withdrawals, in spite of sentiment remaining uninspired in the negative territory as financial pressures weigh on consumers.

With the headline consumer price inflation having fallen to 2.8%, sentiment among consumers has been slow to take advantage of this as household finances have deteriorated.

The FNB/BER Consumer Confidence Index (CCI) released on Wednesday edged one point lower to -6 during the fourth quarter of 2024, down from -5 in the third quarter, which was the highest since the first half of 2019.

Even though it had soared from -15 index points in the first quarter of 2024, the latest reading remained slightly below the long-term average of the CCI, which was at zero since 1994.

However, FNB said although the upward momentum of the CCI seems to have stalled during the fourth quarter, the -6 recorded in the fourth quarter was “the best festive season consumer confidence reading since before the Covid-19 pandemic broke out”.

FNB said the upsurge in consumer sentiment since the end of 2023 also pointed to a pronounced increase in consumers’ willingness to spend compared to last year’s peak trading period when the CCI was at -17 index points.

Consumers’ ability to spend, according to FNB, has also improved notably, bolstered by lower inflation, 50-basis points of interest rate cuts and an estimated R40 billion in the Two-Pot retirement system payouts.

FNB said the combination of much-improved willingness and ability to spend, particularly among affluent consumers, the group with the greatest spending power, suggested that retail tills will jingle much louder this festive season.

FNB chief economist Mamello Matikinca-Ngwenya said the marginal decline in the CCI during the fourth quarter can be ascribed to slight deteriorations in the economic outlook and household finances sub-indices.

Matikinca-Ngwenya, however, said despite the one-point decline in consumer sentiment relative to the third quarter, the upsurge in the CCI since the end of 2023 pointed to a marked increase in consumers’ willingness to spend during this holiday season.

“A string of favourable developments has seen consumer confidence riding much higher since the second quarter of 2024, including the formation of a government of national unity, the termination of load-shedding, a substantial deceleration in inflation, two interest rate cuts and the implementation of the Two-Pot retirement system,” she said.

“However, headwinds started to emerge in November, arresting the upward trajectory of consumer confidence.

These include a marked depreciation in the rand exchange rate, a 25 cents per litre increase in the petrol price, lower stock prices on the Johannesburg Stock Exchange and concerns about the outlook for global trade and South African exports since the re-election of Donald Trump as the United States president.

“Even so, heading into the festive season with consumer confidence only one point shy of a five-year high bodes well for consumer-oriented companies.”

The fourth quarter CCI survey was conducted between 11 and 22 November, after the respective 25 basis points cuts at the November and September’s Monetary Policy Committee meetings.

Having increased from -9 to -7 in the third quarter, the economic outlook sub-index of the CCI reverted to its second-quarter level of -9 in the fourth quarter.

The household finances sub-index of the CCI declined from 14 to 11 index points but the sub-index measuring the appropriateness of the present time to buy durable goods, such as vehicles, furniture, household appliances and electronic goods continued its upward trajectory, with an improvement from -23 to a two-year high of -21 in the fourth quarter.

Investec chief economist Annabel Bishop said confidence had deteriorated as festive pressures to spend weighed in.

“Interest rate cuts have been slow to emerge for South Africa this year and the increments of the cuts have been small, at -25 basis points, not inspiring a lift in confidence yet,” Bishop said.

“The suitability of the time to buy durable goods was still markedly depressed. Interest rate cuts so far have been very mild and pension fund withdrawals under the Two-Pot retirement system have been delayed for many.

Cheeringly, the outlook for expected household finances is in positive territory and is a key driver of lessening the overall depressed nature of consumer confidence.” – IOL News