BUSINESS NEWS - Momentum Investments have released their report based on the Consumer pulse report prepared by the Momentum Investments Macro Research Team. The report assesses the position and sentiment of the South African (SA) consumer. 

The consumer is a significant contributor to overall economic activity and assessing the pulse of the SA consumer on a quarterly basis can give us further insight into how the overall economy is performing.

Please see below, a summary of highlights from the team:

• Consumer sentiment, as measured by the First National Bank (FNB)/Bureau for Economic Research (BER) Consumer Confidence Index (CCI), improved slightly to negative 15 points in the first quarter of 2024. This was due to improved sentiment around expected economic performance and expected household finances expressed by high-income households.

• Based on data from Eight20, low- and low-middle-income groups (typically have retail credit) have the highest percentage of individuals with loans in default. High-income earners have the lowest percentage of individuals with loans in default, but this income group is increasingly feeling the strain of high interest rates on mortgages.

• According to the National Credit Regulator (NCR), the value of mortgages in default (more than 90 days in arrears) has spiked from the first quarter of 2023 but overdue balances are still contained relative to the total value of mortgages. As such, South Africa (SA) is unlikely to experience a marked increase in house repossessions. In contrast, unsecured credit (which attracts higher interest rates) has the highest percentage of overdue debt.

• The high cost-of-living environment has led consumers to even cut back on, or downtrade, necessities. This is reflected in the contraction of retail trade sales from general dealers in 2023 as reported by Statistics SA (Stats SA). The decrease in sales volumes is evident across retailers and producers targeting different income groups.

• The income position of consumers may improve in the coming months. Easing inflation will likely lead to higher consumer disposable income levels and higher real wage growth. Furthermore, the announced increase in grants and the higher national minimum wage rate will be supportive of income levels. However, the higher tax burden (bracket creep) announced in the 2024 Budget Review may dampen the prospects for higher-income consumers.

• Government’s intention to create almost 400 000 more work opportunities through the Expanded Public Works Programme (EPWP) in the first quarter of 2024, as well as the reported improvement in private sector hiring intentions according to the BER surveys, could possibly help lower SA’s high unemployment rate and boost household consumption expenditure. However, benefits accruing from the EPWP programme are not sustainable because the programme is designed for short- to medium-term opportunities.

• The expected moderation in inflation to an average of 5.4% in 2024 (our estimate), possible interest rate cuts (likely from the second half of 2024), the recovery in real wage growth, the noticeable increase in grants and the possibility of employment opportunities could provide relief for consumers in 2024 and consequently boost household consumption expenditure. However, we note that lingering inflation risks and the possibility of a delayed and shallower interest rate cutting cycle, among other factors, could limit the consumer spending pick up.

• We expect household consumption expenditure to grow by 1.2% year-on-year (y/y) in 2024 (0.7% y/y in 2023) and lift slightly to 1.5% y/y in 2025. This should be supportive of economic growth.

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