30 Jan 2018

Consumer Confidence – moderates fractionally in Q4.17

Annabel Bishop

Chief Economist

But still at depressed levels (reading pre ANC conference)

price sector spending
  • FNB/BER’s consumer confidence index (CCI) remained in negative territory in Q4.17, albeit lifting fractionally to -8, from -9 in Q2.17 (there is no reading for Q3.17). The index has been in negative territory since 2012, the longest period in the data history, but troughed on a four quarter rolling average basis in 2016. 
  • With the data set beginning in 1982, today’s Q4.17 reading is similar to those of recessions and/or low confidence periods, but the Q4.17 data was surveyed between 28th October 2017 and 4th December 2017, and Cyril Ramaphosa’s recent election as ANC president should boost the Q1.18 CCI reading.
  • In the Q4.17 CCI survey, the consumers' view of the appropriateness of the present time to buy durable goods fell, from -12 to a seventeen year low of -24, while their outlook on their household finances dropped from +6 to +2, a two and a half year low. 
  • BER notes that “(l)ow-income households in particular experienced great financial strain towards the end of 2017, on the back of very high food price increases registered in 2016 and 2017, record high unemployment rates and soaring fuel prices during the second half of 2017.”
  • However, the rand has recently strengthened on Ramaphosa’s appointment to President of the ANC, positive comments on ending corruption, repairing SOE governance and the health of public finances, maintaining key institutional strengths and promoting economic growth, as well as USD weakness. 
  • Indeed, the rand has appreciated to R11.80/USD this year from R16.97/USD in early 2016, although about R2.00/USD of the domestic currency’s weakness was driven by political events at the end of 2015, while political developments in late 2017 have seen the rand gain by almost R2.00/USD.
  • South Africa saw a huge petrol price increase of 71c/litre in December 2017 as marked rand weakness ensued on rising market concerns that the Zuma camp would win presidency of the ANC. This fuel price hike is now set to be largely unwound on rand-appreciation-led petrol price cuts in January and February.
  • Petrol price cuts feed through immediately to inflation, with CPI inflation set to drop below the midpoint of the inflation target of 4.5% in February. This would establish a lower base, and so a lower outcome for CPI inflation in H2.18, and therefore in 2019, the SARB’s inflation target period. This could in turn ease pressure on interest rates, with the SARB currently still signalling two hikes of 25bp each.
  • An early Zuma exit could see the rand strengthen to R11.70/USD, and then move towards R11.00/USD providing that Cyril Ramaphosa can assume Presidency of SA without any conditions that hamper his ability to follow the free market reforms necessary to avoid further credit rating downgrades, eradicate corruption and deliver rapid economic growth.
  • SA consumers would gain from the savings from a fall in the petrol price, supporting retail sales growth and limiting the ascent of inflation as purchasing power is bolstered. Consumer and business confidence was suppressed last year, but substantial political and policy certainty will likely feed through into the 2018 confidence measures, lifting investment, expenditure and GDP growth.
  • Consequently, the BER’s consumer confidence index could move into positive territory this year. Sales of durable goods could improve as rand strength lowers prices of imported goods (many of which are durable goods).
  • Household consumption expenditure is consequently likely to improve in 2018, buoyed by markedly higher consumer confidence than 2017’s -8 reading for the year as a whole, and the positive mood could lift private sector investment as well, and even stimulate some FDI. 
  • The rand could move towards R10/USD if the up case becomes a growing reality under a truly growth and credit positive Ramaphosa Presidency of SA. Substantial further rand strength would cause meaningful additional fuel price cuts, and place downwards pressure on CPI inflation and interest rates, bolstering consumers purchasing power, and likely engendering faster growth in private sector credit extension.
consumer confidence graph