Consumer confidence index

Photo: NJR ZA / Wikimedia Commons

Consumer confidence dips to 35-year low as households tighten belts

In the second quarter of 2020, households are struggling to spend, according to the latest report from the Consumer Confidence Index

Consumer confidence index

Photo: NJR ZA / Wikimedia Commons

In the second quarter of 2020, South African consumer confidence has dipped to a 35-year low, with customers reluctant to spend on goods after suffering crippling financial losses from the COVID-19 pandemic.

The Consumer Confidence Index (CCI), which is sponsored by First National Bank (FNB) and compiled by the Bureau for Economic Research, saw a sharp drop of 24 points to -33 overall, with the first quarter of 2020 already having provided a less than inspiring -9 point evaluation of consumer confidence. 

Financial mechanisms fail to bolster consumer confidence  

Mamello Matikinca-Ngwenya, chief economist at FNB, said in a statement on Tuesday 7 July that the dire report suggests that South Africans simply do not have enough liquid wealth at their disposal to allow them to spend. 

“The sharp deterioration in the financial prospects index of the CCI and the complete collapse in the time-to-buy durable goods index suggest that the COVID-19 pandemic and ensuing economic restrictions had a materially negative impact on both consumers’ ability and willingness to spend,” FNB chief economist Mamello Matikinca-Ngwenya said.

He said that a fair amount of blame for this reduction in consumer confidence can be attributed to the pandemic, and said that government relief packages that were distributed, as well as other financial mechanisms devised to assist the desperately ailing economy, had not been enough to prevent the decline. 

“Millions of workers were placed on unpaid leave or reduced pay, or even retrenched, as businesses scrambled to survive the lockdown – this severely constrained household income, and therefore consumers’ ability to spend,” he said. 

“Not even the cut-price specials offered by durable goods retailers or the substantial interest rate cuts by the SARB (South African Reserve Bank) seem to be enough to entice consumers to spend their money on durable goods or expensive luxuries.”

CCI nearing record low set in 1985 

The CCI now sits precariously close to the record low of -36, with that all time low having fallen in 1985 when the Apartheid government instituted a state of emergency in response to violent uprising against the racist regime. 

Not even the South African Reserve Bank’s (SARB) slicing of the interest rate to a historic low of 3.75% to provide relief to households and businesses could ensure that individuals felt compelled to spend.

Matikinca-Ngwenya said that the worst hit are low-income households, where limited financial savings are available and a significant deterioration of ones quality of life is experienced. 

“Unlike affluent households, low-income ones typically have little savings to fall back on during times of financial hardship and therefore experienced a fairly immediate and significant deterioration in their quality of life when the lockdown commenced,” said Matikinca-Ngwenya