Mariam Isa
3 July 2008
Johannesburg — CONSUMER confidence plunged at its fastest pace in 24 years in the second quarter of this year, knocked by soaring food and fuel prices, rising interest rates and deteriorating job prospects, a key survey showed yesterday.
A confidence index from the Bureau for Economic Research (BER) and First National Bank dived to -6, from +12 in the first quarter, a four-year low, showing most urban consumers expect the economy to deteriorate.
The survey of 2500 urban consumers across all races and income groups also cited falling house prices, the deepening crisis in Zimbabwe and violence against foreigners as factors that undermined confidence.
FNB chief economist Cees Bruggemans said the index, which has plummeted from a record high of +24 a year ago, suggested that household spending would slow further in the next few months.
"The outlook is a miserable one, with even lower consumer confidence readings expected over the next 12 months. This is bound to leave its mark on household consumption spending," he said.
Consumer spending, still the economy's main growth engine, has slowed sharply since 2006, curbed by a cumulative five percentage point rise in lending rates. This has boosted debt costs, while growth in disposable income has also declined.
Bruggemans said he believed the economy was on the brink of recession after growing at a robust pace of more than 5% over each of the past four years.
"Only a sudden change for the better, in oil, food, CPIX (SA's main inflation gauge) and interest rates might prevent such an outcome," he said.
But BER economist George Kershoff said it was likely that only parts of the economy would contract, with the retail sector one of the most vulnerable.
Retail accounts for 14% of SA's gross domestic product and is the economy's third biggest sector after financial services and manufacturing.
Confidence in the economy fell the most sharply, while the number of consumers expecting their own finances to improve also dropped. Most also say now is an inappropriate time to buy durable goods.
"It is evident that consumers have turned negative on the economy and time to buy durable goods, but they are still positive -- albeit to a much lesser degree -- about their personal finances," Bruggemans said.
Breaking with an established trend, the survey showed that confidence among black consumers fell more sharply in the second quarter of this year than among white consumers.
This helped narrow the gap between the two groups. White consumer confidence fell by 12 points to -13, while black consumer confidence plunged by 20 points to -2, the data showed.
A confidence gap between high and low income earners also narrowed, but those at the top end remained more upbeat.
The survey coincided with news that new vehicle sales fell by more than 20% last month, for the second month in a row.
"Today's data reinforce our expectations of a further consumer driven economic slowdown," said Jean-Francois Mercier, a Citigroup economist.
But he thinks the news will not prevent another half percentage point hike in lending rates at the Reserve Bank's policy meeting next month .
"Nonetheless, we feel that the outcome of the August meeting remains far more balanced than the market assumes."
Surprisingly, official data show that retail sales rebounded in the first quarter of this year, after slowing steadily since the middle of 2006.
That was when the Reserve Bank began raising interest rates in a bid to curb inflation, which rose by an annual 10,9% in May , which was a 5-year peak.
Analysts have revised down their forecasts for overall growth in the economy this year and next, taking account of the deteriorating inflation outlook and prospects of even higher interest rates.
The BER/FNB survey took place between May 19 and June 11 -- a day ahead of the Bank's last interest rate hike, which took its repo rate to 12%.
But the BER said media reports quoting the Bank and market analysts as saying further rate hikes were looming also hit confidence.
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Think about it, this is lower than the bad days of Nationalist rule,boycotts etc.
Is this really so suprising ?.I don't think so.