SA consumer confidence suggests that consumer spending should slow meaningfully in 2016/2017

While South African consumer confidence (as measured by the BER) is not at its lowest level ever recorded, it is certainly close. Furthermore, I am anticipating that the confidence level will have fallen further when we get the Q1 2016 update next week (12 April 2016). At the end of Q4 2015, the BER consumer confidence index was measured at -13.8, this compares with previous lows of -6 at the time of the global financial market crisis, -17 at the time of the 2001 economic recession, and -21 ahead of the 1994 political transition (see chart attached).

In South Africa there is a basic, but important, relationship between consumer confidence and consumer activity, as would be expected (see chart attached). While the relationship is not necessarily as strong as what is found in many other countries, it is robust enough to suggest that if consumer confidence improves on a sustained basis (2005 to 2008) then consumer spending should also improve. Equally, a sustained weakening of confidence should reflect in slowing consumer spending, or perhaps even a recession.

Currently, there is something of a mismatch between South African consumer confidence and consumer spending. Although consumer confidence levels have been falling consistently over the past twelve to eighteen months (and are expected to fall further), consumer activity has held-up relatively well, growing by 1.6% in 2015, which is up from growth of 1.4% in 2014. While growth of 1.6% is obviously not especially robust in the South African context, it is higher than what would be expect given the sharp fall-off in confidence.

Unfortunately, this mismatch between confidence and spending is expected to be resolved through a meaningful slowdown in consumer activity over the next twelve to eighteen months. Furthermore, there is a risk that consumer spending goes into recession if job losses intensify. We are currently forecasting that consumer spending will grow by a mere 0.8% in 2016 and will update the Q1 2016 confidence data next week.

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