Interest rate cuts boost consumer confidence

The latest Bureau for Economic Research (BER) consumer confidence index showed an improvement in the first quarter of 2009. Cees Bruggemans, chief economist at First National Bank, says the result contrasts with similar surveys conducted in developed economies. While South African consumers are feeling the benefit of falling interest rates and inflation, consumers in the US and UK have their backs to the wall. “Consumer confidence has dropped to near record lows in the USA and parts of Europe,” notes Bruggemans, painting a grim picture for major Western economies. In the last three months “economic growth contracted sharply in many countries, millions of people were laid off, some countries experienced bank crises and share prices tumbled further,” he said.

A quick look at expectations for growth in 2009 confirms that South Africa will weather the economic crisis better than most. Most economists expect South Africa’s GDP growth to remain positive for the full year – with National Treasury pencilling in growth of 1.2%! Meanwhile, “the global economy is heading for its biggest contraction since the Second World War.”

Unpacking the FNB/BER consumer confidence index

There are a number of reasons for consumers to feel more upbeat. The most obvious is the 150 basis point decline in interest rates between December 2008 and February this year, with the 24 March cut coming too late to reflect in the latest survey. This relief goes hand in hand with lower fuel price (although repeated 2009 hikes could soon reverse this situation) and lower levels of inflation. A stable rand and 2009/2010 budget also contributed. Consumers have more net disposable income and their debt repayments to disposable income ratios are improving. And that’s why the overall consumer confidence index improved five points from -4 (Q4 2008) to +1 today. But how is the index compiled?

The FNB/BER consumer confidence index assesses consumer responses in three areas: the expected performance of the economy, the expected financial situation of households and the rating of the appropriateness of purchasing durable goods (such as furniture, appliances, electronic equipment and motor vehicles). But the +1 result isn’t necessarily good news. “The first quarter FNB/BER CCI result of +1 has historically been associated with pedestrian growth in consumer spending,” said Bruggemans.

The domestic economy sub-index improved from -5 to +4 and the own finances sub-index improved from +9 to +15 in the latest survey. Bruggemans said consumers’ attitudes to purchasing durable goods hadn’t changed much since the last quarter of 2008. And that’s bad news for the country’s durable goods retailers in the short-term. Bruggemans notes that “the low level of the time to buy durable goods sub-index indicates dismal growth in spending on durable goods.” But he agrees “the reason why the own finances sub-index increased during the first quarter 2009 is probably because the positive impact of the interest rate cuts, lower petrol price and national budget fully countered the adverse impact of the job losses and fall in house prices.” Unfortunately the consumer landscape remains under siege from the threat of further job cuts.

Forget Stats SA, minerals and energy affairs tells the truth

Speaking at the launch of the department of mineral and energy affairs’ Beneficiation Strategy, Minister Buyelwa Sonjica said the economic crisis was affecting the lives of ordinary South Africans. This crisis had particular impact in the resources sector where "both demand and prices for commodities have been severely affected, with the exception of a handful of commodities that have remained resilient.” Sonjica said more than 100 000 jobs had been lost since the final quarter of 2008 – with more than 200 000 more jobs on the line in 2009.

As retrenchments take hold we’ll probably witness further deterioration in consumers’ credit profiles. The National Credit Regulator (NCR) announced that at 30 September 2008 there were 17.53m active credit consumer records held by local credit bureaux. And only 59.5% of these consumers are in good standing, with no accounts in arrears more than 60 days. The NCR says there are 7.1m consumers with impaired records! Debt consultants urge consumers to maintain a clean credit record because it’s easier than ‘mending’ a poor one. If you do run foul of the credit bureaux then you should immediately take the necessary steps to ‘fix’ your record.

Editor’s thoughts:
The National Credit Act should make it more difficult for consumers to run into financial difficulty. However, there appear to be millions of South African consumers who are struggling with pre-NCA debt. Have you run foul of the credit bureaux and were you able to ‘fix’ the problem. Add your comments below, or send them to gareth@fanews.co.za