SA Consumers Still Optimistic

Latest Consumer Confidence Index

A recent article discusses the results of the latest Master Card Worldwide Index of Consumer Confidence for the latter half of 2008, which shows that South Africans remain impressively optimistic, despite significant increases over the past 6 months.

The bi-annual survey also indicated an understandable drop in consumer confidence year-on-year, when compared to last year’s score of 80.7 for the second half of 2007. “The index provides valuable understanding in the shifts of South African consumer sentiment, as well as the identification of market trends over time. The current Index score shows that consumers remain positive despite a considerable drop in confidence over the last six and twelve months,” according to Eddie Grobler, senior vice president and general manager for Africa, Master Card Worldwide.

The survey is conducted on behalf of Master Card by a third party research company and is designed to gauge consumer sentiment for the six months ahead. Respondents are interviewed by phone and the information relates to consumer perceptions on economic trends only. It is not a projection of the business or financial performance of Master Card Incorporated or any of its affiliates.

The selected markets where the survey is conducted include South Asia, the Middle East and Africa (SAMEA). The eight markets surveyed comprise Egypt, India, Kuwait, Lebanon, Qatar, Saudi Arabia, South Africa and the UAE, with scores based on answers to questions relating to five key economic indices. These indices are employment, economy, regular income, stock market and quality of life. A score above the midpoint of 50 indicates that consumers are optimistic about the overall economic climate, while a score below 50 indicates pessimism.

The South African survey focused on the major cities of Johannesburg, Cape Town and Durban, revealing that Johannesburg, with a score of 75.9, is the most optimistic of the three urban areas. Durban recorded a score of 73.8, while Cape Town reflected a score of 72.9, with consumers in Durban experiencing the biggest decline in confidence, having previously been the most optimistic of the three cities.

“It is my opinion that the golden era of consumer confidence in South Africa is beginning to lose its shine,” said Mike Schussler, chief economist at T-Sec. “While it is important to note that the Index is still positive at 74.3, the fact remains that the Index dropped by 6.4 points year-on-year and by 9.4 points in the last six months. This makes South Africa the third least optimistic of the eight countries surveyed”.

The economy proved to be the category that experienced the biggest decline in confidence. When asked whether they expected the country’s economic performance to improve, remain the same, or worsen over the next six months, nearly 48% said that they expected it to remain the same or get worse. 52% of the respondents were more optimistic and said that they expected it to get better.

According to Schussler, “My sense is that, in general, consumers are still confident about the prospects of South African economic growth – they just feel that it will now grow at a much more leisurely rate”. He noted that this feeling may be due in part to the recent drop in South Africa’s GDP growth rate, which has gone from a rate of 5.3% in the last quarter of 2007 to just 2.1% in the first quarter of 2008.

Other noteworthy results compared to the previous Index include the stock market indicator (83.0 six months ago, now 69.8), the quality of life indicator (82.9 six months ago to 71.2) and the employment indicator (81.9 six months ago and now 72.9).

“Again, though, it is important to note that the stock market reached record highs immediately after the survey period, so we expect the stock market indicator to remain positive in the future. And, year-on-year, consumers’ view of the stock market actually improved by over two points, reflecting the highs that the stock market has achieved during 2007/8,” said Schussler.

When it comes to the decline in the employment indicator, Schussler believes that this has more to do with the fact that employment growth in South Africa has slowed down considerably and rumours of job losses in the mining and manufacturing sectors has received a lot of attention in the media.

A surprising result seems to be that the respondents’ expectation of an increase in their regular income remains extremely optimistic. Schussler suspects that this is probably due to the fact that social welfare payments have not been affected by the current economic slowdown.

The Index score of 74.3 may indicate that South African consumer confidence is still optimistic, it is significantly lower than its peak of 91.1 for the second half of 2006 and below the historical average of 80.1 – highlighting the fact that optimism is not as high as it has been in the past. Currently only Lebanese and Egyptian consumers are less optimistic than their South African counterparts, with South Africa dropping from fourth to sixth place out of eight in the last six months.

The information contained in this article is courtesy of the Supermarket website (“South Africans feeling the pressure”, 16 July 2008).

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