As was to be expected following the easing of lockdown restrictions, consumer sentiment recovered somewhat during the third quarter following the shocking decline triggered by the Covid-19 pandemic and concomitant economic lockdowns in the second quarter.
That’s evident from the latest FNB/BER Consumer Confidence Index (CCI) which edged up to -23 during the third quarter after crashing from -9 index points to a 35-year low of -33 in the second quarter. Bar the second quarter low of -33, the latest CCI reading remains the lowest on record since the first quarter of 1993 - a recessionary period of great uncertainty just before South Africa's first democratic election.
The third quarter CCI survey was conducted by means of a telephone call survey between 11 and 21 August. On 15 August, President Cyril Ramaphosa announced that the country would move from level 3 to level 2 of the risk-adjusted strategy, reopening South Africa's provincial borders for leisure travel, lifting the bans on the sale of alcohol and tobacco products, and permitting visits to family and friends in small groups.
According to the survey, the partial recovery in the CCI during this period can be ascribed to increases in the household finances and time-to-buy durable goods sub-indices of the CCI, following major drops in the second quarter. The household financial outlook sub-index of the CCI edged up from -13 to -2 index points, but remained well below the first quarter reading of +14. Similarly, the sub-index measuring the appropriateness of the present time to buy durable goods (e.g. vehicles, furniture, household appliances and electronic goods) improved from the historic low of -64 reached in the second quarter to -44 in the third quarter. Disappointingly though, the latest reading of -44 is still deeply depressed and even slightly below the previous record low of -42 (reached in 1984).
The economic outlook index, which saw a comparatively smaller decline in the second quarter (from -16 to -21), deteriorated further in the third quarter (to -23).
A breakdown of the CCI per household income group shows that confidence levels improved somewhat across the board. After posting the largest fall of all income groups in the second quarter (from +2 to -35), low income confidence also recovered the most (by 15 index points to -20) in the third quarter. High- and middle-income confidence improved by 8 and 5 index points respectively. Despite these improvements, consumer sentiment across all income groups is still very much depressed.
"The gradual lifting of restrictions and the resumption of economic activity as South Africa moved from level 4 of the risk-adjusted strategy in May to level 3 in June and level 2 in August have finally allowed most consumers to go back to work and earn a living,” said FNB chief economist Mamello Matikinca-Ngwenya. “Low-income consumers who were largely unable to work from home would have been particularly relieved by this development. The improvement in the disbursement of social grants after initial glitches likely also bolstered the financial positions of low-income households.”
He said it was interesting to note that consumers were less pessimistic about the outlook for their own household finances in 12 months' time (-2 index points) compared to their glum expectations for the national economy (-23).
The bottom line however is that the significant slowdown in the rate of new Covid-19 infections in SA, the further easing of restrictions on economic activity, and the partial recovery in consumer confidence are all good for the South African economy. “However, the fact that the CCI regained only 10 index points following its 35-point plunge reinforces our view that the Covid-19 pandemic and related economic restrictions delivered a profound blow to consumers' willingness and ability to spend - and it may take years for consumer confidence and household income to recover fully,” he added.