Herman van Papendorp, Tshiamo Masike, and Sanisha Packirisamy of Momentum Investments

Momentum Investments have released their report based on Consumer pulse: Consumers face mounting financial pressures prepared by the Momentum Investments Macro Research Team.

Below, is a summary of highlights from the team, as well as a PDF of the research paper to download.

Highlights

• The First National Bank (FNB)/Bureau for Economic Research (BER) Consumer Confidence Index (CCI) dipped slightly to negative 17 points in the fourth quarter of 2023 from negative 16 points in the third quarter. The drop in CCI was due to pessimism about the expected economic outlook. The household finances and time to buy durable goods sub-indices improved.

• Respondents continued to be more optimistic about their expected household finances than the expected performance of the economy. Low-income households were more optimistic about their expected household finances while high-income households were the least optimistic.

• Consumers continue to feel the impact of the past interest rate hikes, as evidenced by nominal household credit extension growth moderating for the ninth consecutive month to 5.2% year-on-year (y/y) from a recent high of 8% and the ratio of household debt-service costs to disposable income increasing to 8.8% from the recent low of 6.7%. Higher debt-servicing costs squeezing consumers’ disposable income is making it increasingly difficult for consumers to honour debt repayments.

• According to the National Credit Regulator (NCR), vehicle repossessions in the first half of 2023 were 5.3% higher than in the same period a year ago. On the other hand, mortgage repossessions are relatively flat but Lightstone reported that there is a rise in voluntary home sales, especially among homeowners who took advantage of the low interest rate period in 2021.

• The official unemployment rate, reported by Statistics South Africa (Stats SA), declined to 31.9% in the third quarter of 2023 from 32.6% in the second quarter.

• Despite the decline in the third quarter unemployment rate, household consumption expenditure decreased by 0.3% q/q which reflects that consumer finances are strained.

• BankservAfrica data shows that the total value of sales declined slightly from R4.9 billion in 2022 to R4.5 billion in 2023 and sales volumes decreased from 7.5 million in 2022 to 7.3 million in 2023. Furthermore, consumers prioritised essential spending over discretionary spending and there is a growing preference for online shopping.

• The SA Reserve Bank (SARB) expects an average salary growth rate of 6% in 2024. Higher salary growth compared to the 4.6% in 2023 will likely boost household consumption expenditure next year.

• The implementation of the Two-pot retirement system on 1 September 2024 is expected to support durable goods expenditure but there is a possibility that some consumers may use the funds to repay their debt.

• We forecast modest growth of 0.8% y/y in household consumption expenditure for 2023 and a slight increase to 1.3% y/y in 2024 on the back of moderating inflation, the likelihood of interest rate cuts and higher real wage growth, causing slightly better economic growth of 1% next year.

ENDS