Consumers’ pockets will remain constrained in the coming quarters given persistent core inflation pressures and the anticipated further interest rate hike by the SA Reserve Bank (SARB) in January, according to Momentum Investment’s Consumer pulse.
The SARB was expected to hike the repo rate in an attempt to anchor inflation, with expectations at the mid-point of the target range.
Momentum Investment said higher interest rates would further decrease consumers’ disposable income as more money needs to be allocated toward debt financing.
“While high inflation and interest rates were the headline factors underlying the depressed state of consumers this year, consumers have been confronted with many other headwinds such as the weak economy, low real income growth and structurally high unemployment. The only bright spot has been public sector employment but pressure to rein-in the wage bill does not bode well for this indicator,” the report said.
The TransUnion SA Consumer Credit Index fell by 1 point to 48 in the third quarter of 2022, below the 50-point neutral level, indicating a moderate deterioration in the fragility of consumers’ balance sheets.
Additionally, the third quarter index was 12 points lower than the 60 points recorded a year ago, which reflected increased consumer pressures. According to the report, the main driver of the constrained index is higher inflation, which had driven credit demand despite a high interest rate environment.
The report also highlighted that the First National Bank/Bureau for Economic Research (FNB/BER) Consumer Confidence Index (CCI) surprised to the upside with an improvement of 12 points to -8 in the fourth quarter of 2022. The improvement was broad-based, but the optimism that consumers displayed about their expected financial position contributed the most.
There were signs of rising consumer stress with households taking up more credit to deal with the increase in the cost of living. This was said to be contrary to the improvement in the sub-index measuring consumers’ financial position, which signalled that those who were hopeful about their financial position may not be indebted.
A higher percentage of rejected credit applications and a lower share of impaired records were said to be the result of tighter lending standards by credit lenders.
Credit statistics suggested that a smaller number of consumers were being granted unsecured debt, but the loans were larger in size and mainly targeted at the middle- to upper-income earners.
BankservAfrica reported to have broken a record by processing over 100 million EFT (electronic fund transfer) credit payments in October 2022 indicating that consumers were increasingly using credit to make ends meet.
The ratio of household debt to disposable income as well as that of debt-service costs to disposable income increased marginally in the second quarter, but remained below long-term averages despite a higher uptake of credit and higher interest rates.
Despite multiple headwinds, consumers were said to not be overly pessimistic about their financial position as one would have expected in an environment where wages had struggled to match the recent surge in inflation.
Relative optimism among low-income earners was said to likely stem from more government support, while that of middle- to high-income earners was likely a consequence of higher investment returns, a savings buffer and higher income growth.
Following the re-opening of the economy, consumers’ spending priorities had shifted from home renovations and expenditure on medication to expenditure on food and drinks as well as clothing and footwear, the report said.
The retail sector was showing signs of ongoing strength following positive growth in sales volumes in the third quarter.
Moreover, successful Black Friday sales were expected to boost growth in the fourth quarter. Nevertheless, inconsistent and insufficient electricity supply remains a drag on growth in the retail sector and was expected to keep a lid on the country’s potential growth rate.
The success of Black Friday was expected to support the retail sector in the fourth quarter given higher foot count in malls relative to last year as well as the indication of higher transactions, of more than R3 billion, by FNB customers.
Still weak consumer confidence was said to suggest that despondent consumers were likely to contribute less to overall growth going forward.
“We expect growth in household consumption to dip from an expected 3% in 2022 to 1.4% in 2023,” said the Momentum Macro Research Team.
Last month, Wonga released the results of its annual Festive Season Survey, which focused on trends by consumers over the summer season.
The survey which provides a comparison in spend and trends of the years 2018–2022 revealed that based on South Africa’s mid-year population size estimates, South Africans would spend more than R226bn this festive season. It showed that Festive spending was set to decrease by 11% this year, when compared to last year as more than 50% of people said they would spend less over the holiday season than they did last year.
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