Actual: -3 pts
Previous: 5 pts
Confidence among SA consumers declined in Q2:12 as consumers grew less optimistic about economic conditions. The index dropped to -3.0 pts (the lowest outcome since Q4:08) in Q2:12, after registering a “neutral” 5pts in Q1:12 and Q4:11. All three sub-components of the index declined during the quarter, weighing heavily on consumer sentiment across all income groups, population, age and gender. Consumers’ rating about the expected performance of the economy, the expected financial position of household and the rating of the appropriateness of the present time to buy durable goods deteriorated in Q2:12.
The lower print in consumer confidence does not alter our interest rate view. We maintain our long-held view that interest rates will remain on hold at the conclusion of the MPC meeting tomorrow. However, we continue to see a 50/50 probability of a rate cut in the future, particularly if consumer spending contracts in line with the weak consumer confidence and if the global and local economic growth deteriorates further. Inflation is likely to remain within the target range in the short- to medium term, thus giving the SARB enough room to adjust policy, should the need arise.
The decline in consumer confidence points towards weaker consumer demand in the quarters ahead. Consumer sentiment during the quarter was primarily affected by the continued uncertainty over Europe’s debt crisis and the resultant global economic slowdown. Furthermore, consumers are faced with headwinds that could curb spending in the coming quarters. Such headwinds include the rising unemployment rate, continuing debt leveraging process, rising cost of utilities such as electricity and slow credit uptake.
Consumer demand variables have recently showed underwhelming trends in activity. The housing market remains subdued amid weak economic activity. Spending on retail goods has already been affected by the much-reduced confidence. April reflected a significant slowdown in retail sales to 1.0% y/y from a 6.7% increase the previous months. Admittedly, sales during April were impacted by the increased number of public holidays during the month. However, in the absence of these holidays, the retail sales growth path is undoubtedly on an easing trend as consumers grapple with the uncertain economic environment.
The slowdown in household consumption expenditure in Q1:12 is an indication that consumers were spending cautiously, given the prevailing economic conditions. Spending for durable and semi-durable goods moderated sharply. Spending seemed to be concentrated in non-discretionary items, as growth momentum in household disposable income moderated in Q1:12.
We have pencilled in a softer growth profile for this year, with GDP growth expected to register at 2.8% in 2012, down from 3.1% in 2011. We expect household consumption expenditure to be the main engine of growth but moderate to 3.8% y/y in 2012, from 5.0% y/y in 2011.
Details: consumer confidence points towards easing consumer demand
The consumers’ rating of whether it is a good time to buy durable goods deteriorated further, to -11 pts in Q2:12 from -6 pts in Q1:12. This is consistent with the moderation in durable goods spending in Q1:12 and suggests that spending will remain subdued this year. Spending on durable goods declined to 8.2% q/q (saar) in Q1:12 versus 16.6% q/q (saar) in the previous quarter. The sharp slowdown in the demand for durable goods reflects high household indebtedness and consumers’ less favourable balance sheets.
The turbulence in the Eurozone and a slowdown in China’s growth momentum weighed heavily on consumers’ outlook of their financial positions in 12 months’ time. This sub-component of the overall index slipped to 8 pts in Q2:12 from 16 pts in Q1:12.
Consumers’ view of the economic outlook also took a substantial knock in Q2:12, which is in line with other leading indicators such as the business confidence and PMI. The sub-index fell to -5 pts in Q2:12 from 4 pts in Q1:12.