Consumer confidence recovers on the back of elections

Consumer confidence levels recovered slightly during the second quarter of 2019 as a result of the national elections.

The FNB and Bureau of Economic Research latest consumer confidence index shows that the index rose to five points during the second quarter. This is an improvement from the +2 index points registered in the first quarter of the year.

“Given that consumer confidence also ticked up in each of South Africa’s four previous general election quarters, it is not surprising that sentiment again improved during the second quarter of 2019,” FNB chief economist Mamello Matikinca-Ngwenya noted in the report.

The improvement in the index also signals that the majority of consumers expect the outlook of the SA economy and their household finances to improve over the next 12 months.

“Following the shock implementation of stage 4 load shedding by Eskom during the first quarter, significantly fewer blackouts during the second quarter probably heartened some consumers.

“More importantly, the opportunity to vote in South Africa’s 6th democratic election since the end of apartheid most likely buoyed consumers’ hopes for the future, as has typically been the case in previous general elections,” Matikinca-Ngwenya commented.

Election pattern

Matikinca-Ngwenya further highlighted a pattern showing an uptick in confidence levels over the country’s previous four elections. The largest jump was registered in 2004, when the index rose by 27 points. Again in 2009, despite a “rapidly deteriorating economy” amid the 2009 recession, the index increased by three points. The index also “rebounded” by 10 points during the election season in 2014.

“The election boost to confidence, coupled with greater stability to the power grid, in all likelihood countered the adverse impact of further substantial hikes in fuel prices on consumer sentiment,” Matikinca-Ngwenya explained.

Commenting on the index, Investec chief economist Annabel Bishop said that the index was not influenced by the election outcomes, as the election took place on May 8, outside of the second quarter. Rather, expectations of an ANC majority win had a bearing on the index. 

Short-lived recovery

Matikinca-Ngwenya added that despite the index improving in the second quarter, it is unlikely that there will be a “meaningful recovery” in consumer spending in the near-term. For consumer spending to increase, there also needs to be an improvement in income levels and access to credit, she explained.

“Household budgets are expected to remain constrained by higher personal income taxes, sharp fuel and electricity price hikes and rising unemployment rates. Consumers have been taking on more credit as financial pressures mount, but it is unlikely that the modest uptick in credit extension will be sufficient to underpin household consumption amidst dwindling real disposable income growth,” Matikinca-Ngwenya said.