Consumer confidence boost set to lift spend on durables - economists

Cape Town - A revival in consumer confidence in South Africa points to increased spend on durable goods, according to a macro-economic overview for April released by Herman van Papendorp (head of investment research & asset allocation) and Sanisha Packirisamy (economist) of Momentum Investments on Wednesday.

They say muted inflation and easier financial conditions have translated into a more appropriate time for consumers to buy items such as cars, furniture and recreational equipment".  

The demand side of the South African economy is set to improve over the coming months, according to Van Papendorp and Packirisamy.

Household expenditure accounts for the bulk of the domestic demand side of the SA economy. According to the overview, household expenditure has benefited from a decline in inflationary pressures.

Inflation significantly eroded household purchasing power throughout 2016 and the first half of 2017.

"The recent South African Reserve Bank (SARB) 25 basis-point interest rate cut in March 2018 has additionally created some ease for the consumers' pockets, which bodes well for their general appetite and ability to spend," said Van Papendorp and Packirisamy.

"Growth in domestic demand is on the rise and is expected to continue its upward trajectory, given a revival in confidence, higher real wage growth and a more upbeat employment outlook."

They said growth in retail sales has already showed signs of an improvement, registering 2.9% in year-on-year (y/y) terms for 2017.

• READ: Consumer confidence hits record high on change in SA leadership

Food inflation

"Food inflation averaged above 9% during this period but has since subsided to levels well within the 3% to 6% inflation target band," said Van Papendorp and Packirisamy.

"Meat inflation has stubbornly remained above 6% for the past year, but is showing some form of easing..."

Van Papendorp and Packirisamy pointed out that consumer sentiment in the country registered an all-time high in the first quarter of 2018.

The Consumer Confidence Index released by the Bureau of Economic Research surprised at a record high since the survey's inception in 1982.

This was after the index had shown 12 consecutive quarters of negative sentiment before the significantly positive survey result for the first quarter of 2018.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER