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Muted Growth in SA Consumer Spending, Absa Report Reveals

28 October 2024 Absa

The latest Absa Merchant Spend Analytics Report for August 2024 reveals a slight increase in South African consumer spending on a month-to-month basis.

While consumer spending increased by 1% and transaction volumes rose by 3%, these figures represent a slowdown from the 3% growth observed in both metrics in July. Although this marks the first time this year that spending has grown for two consecutive months, the increase is minimal and not yet enough to celebrate a positive turn in economic sentiment or in household consumption recovery.

Consumer spending growth of 6% outpaced the current inflation rate year-to-date (YTD), however, it was tempered by sluggish performance within the food (+3%) and clothing (+1%) categories. Prior to the pandemic, these two categories accounted for 69% of the overall market share. However, as at YTD Aug’24, their combined share has dropped to 59%. In contrast, categories such as home and garden and business and professional services, which represent 20% of the market, showed robust gains, with increases of 14% and 16% respectively, driving much of the overall market’s upward momentum.

“Our internal data reveals several drivers for the slower growth across food and clothing categories. We’re noticing a shift in spending patterns, with the growth of township economies offering more affordable alternatives likely drawing consumers away from traditional retail channels. In clothing, economic pressures, the rise of fast fashion, and international online retailers have led to further declines for brick-and-mortar stores,” said Isana Cordier, Head: Consumer Goods and Services Sector Coverage at Absa CIB. “However, categories like business and professional services which include Fintech solutions continues to grow, thanks to the increasing adoption of merchant machines by small businesses, which is driving more transactions in this space.”

Issued monthly, the Absa Merchant Spend Analytics Report leverages Absa's merchant data, a unique advantage stemming from Absa’s position as Africa's largest merchant acquirer. Utilizing internal data, it examines patterns and trends, providing a deeper understanding of consumer preferences, behaviours, and spending power across various categories, while offering valuable perspectives on broader economic conditions.

The report also highlighted a growing consumer preference for credit cards to purchase goods and services, with usage increasing steadily by 10% YTD, while debit card growth slowed to 4% in the same period, likely driven by the economic challenges consumers are facing. Meanwhile, online spending saw a modest increase of 19% as compared to last year, primarily driven by significant growth in categories such as home and garden (+35%), business and professional services (+23%), food (+15%), and clothing (+24%). Together, these sectors accounted for 81% of all online transactions.

“We’re seeing a clear shift in consumer behaviour as online shopping continues to grow. The online marketplace, particularly for food and clothing, has become increasingly competitive, with major retailers competing for market share,” said Cordier. “However, while online transactions are on the rise, in-store purchases remain the backbone of the retail sector, indicating that consumers still value physical shopping experiences alongside the convenience of e-commerce.”

Looking forward, September 2024 marked the introduction of the highly awaited two-pot retirement system in South Africa. It is widely expected for a portion of the funds to go towards settling short-term debt and stimulate household consumption. Our preliminary internal merchant data indicates a muted activity in consumer spending and transaction volumes for September 2024. This suggests that factors such as delayed payouts, the processing of tax directives, consumers channeling funds towards reducing debt and consumer uncertainty about withdrawing retirement funds may have contributed to a muted activity in consumer spending.

“While the current performance in consumer spending may seem bleak, it is important to remember that the financial health of the consumer has been under strain for a prolonged period, leading to adjusted expenditure patterns. A rebound in consumer spending may depend on the improvement economic conditions, such as interest rates, inflation, and employment levels. For the time being, we will wait and observe whether the 2-pot retirement reform, combined with the current improving economic conditions, will bring positive changes to consumer spending” said Cordier.

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