The war in Europe undermines the confidence of wealthy South Africans…

Russia’s military invasion of Ukraine, the unfolding humanitarian crisis and the economic ramifications of the war have shaken consumer confidence around the world. Locally, the FNB/Bureau for Economic Research (BER) Consumer Confidence Index (CCI) fell -9 to -13 index points during the first quarter of 2022 despite a marked decline in coronavirus infections and an easing welcome to Covid-19 regulations since December.

Domestic consumer sentiment fell back to -13 index points, the same depressing level last seen in the second quarter of 2021 when the Social Distress Relief (SRD) grant was temporarily halted, the deadly variant Delta Covid-19 has increased and lockdown restrictions have been tightened drastically.

FNB chief economist Mamello Matikinca-Ngwenya points out that the latest reading remains well below the ICC’s long-term average reading of +2 since 1994, signaling weak willingness to spend (or increased caution) among consumers.

(Source: ETFs)

Matikinca-Ngwenya attributes the fall in consumer confidence to a marked decline (by six points) in the economic outlook (from -12 to -18) and in the financial situation of households, with both indices returning to levels seen for the last times in 2020.

“While the index measuring the current opportunity to buy durable goods, such as vehicles, furniture and household appliances, has increased slightly (from -30 to -28), the vast majority of consumers nevertheless still consider the present as an inappropriate time to buy expensive durable goods,” she says.

Further analysis of the FNB/BER CCI reveals that different household income groups seem to experience varying levels of trust. For example, high-income households (earning over R20,000 per month) fell sharply from -11 to -18 index points, while middle-income households (earning between R2,500 and R20,000 per months) fell slightly from -9 to -11 index points. Conversely, low-income people (consumers earning less than R2,500 per month) showed an extended recovery from -9 to -6.

“Although consumer sentiment remains depressed across all three income groups, affluent consumers are now much more pessimistic about the outlook for the economy and their household finances compared to lower-income households,” she says.

Matikinca-Ngwenya attributes the sharp decline in affluent consumer confidence to “alarming images of Russia’s military invasion of Ukraine, unprecedented sanctions against Russia, and the ongoing economic ramifications of this conflict. Soaring fuel prices and another 25 basis point hike in the prime interest rate during the first quarter may also have started to reduce the purchasing power of upper- and middle-income consumers.

The surge in international oil prices has already seen domestic prices of petrol, diesel and paraffin rise by around R2 per liter since January, and further massive price hikes are forecast for April. On top of that, soaring global wheat prices are expected to translate into higher food inflation, while economists expect another interest rate hike at the end of March, which will rise further. the cost of living in South Africa.

Matikinca-Ngwenya warns that while low-income people’s confidence remains seemingly unaffected by the economic toll of the war in the first quarter, less well-off households will ultimately be hardest hit by soaring fuel and food prices. food, as these categories constitute a proportionally larger group. share of their household budget compared to wealthy consumers.

She says the extension of the monthly R350 SRD subsidy for another year until the end of March 2023 has likely supported lower-income consumer confidence levels.

“Discretionary spending will come under severe strain as prices of basic necessities such as food and fuel hit new highs and interest rates continue to rise, calling for downward revisions to projections. consumer spending for 2022,” warns Matikinca-Ngwenya. BM/DM

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Mary I. Bruner