Faced with a myriad of headwinds, including load shedding, high interest rates and high inflation, retailers have had a rough year after sales declined for 10 consecutive months from December 2022 to August 2023

BUSINESS

Retailers will not have a jolly time this festive season, as many consumers are reluctant to spend because of negative perceptions about the domestic economy. High inflation, which contributed to a rise in the petrol price, increases in administered prices coupled with high interest rates saw household consumption dip by 0.3% in the third quarter as consumers put a pause on big-sale items, especially those that are interest rate sensitive.

Faced with a myriad of headwinds, including load shedding, high interest rates and high inflation, retailers have had a rough year after sales declined for 10 consecutive months from December 2022 to August 2023, regaining 0.9% year-on-year in September. On a monthly basis, the positive was much slower, at 0.1% over the same period.

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In line with this outlook, the latest consumer confidence index (CCI) fell slightly in the three months to December to -17 index points, which, together with relentless load shedding, may signal that it might take a while till South Africa’s economy sees meaningful growth. There’s consensus among economists that the economy will realise economic growth below one percent in 2023.

FNB chief economist Mamello Matikinca-Ngwenya said interest rate-linked goods would likely underperform relative to previous holiday shopping periods. She said the low reading of the CCI was less about pressure on households, meaning this season would not be a complete whitewash for retailers.

“Essentials, value-for-money products, and affordable luxuries will likely be at the top of consumers’ holiday shopping lists.

Matikinca-Ngwenya added that high (R20 000) and middle (R5000-R20000)-income consumer groups were less confident about the economy, while lower income groups were more upbeat.

“With a CCI reading of -13, low-income households are slightly less pessimistic about the outlook for the national economy and their own household finances compared to more affluent consumers. This comes as the job numbers last month showed an uptick in job creation to above the pre-Covid levels with 16.7 million people within the labour force now with jobs.

“However, high interest rates and a marked deterioration in South Africa’s fiscal position are likely worrying high- and middle-income consumers,” she stated.

Matikinca-Ngwenya said government’s drive to increase revenue may see an increase in taxes in February next year, which will adversely affect the disposable income of high and middle-income consumers.

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“It is also instructive to note how much more pessimistic households are about the outlook for the national economy compared to their own household’s perceived financial prospects. Even though most wealthy households are pessimistic about the outlook for the SA economy, a small majority of households of less affluent consumers expect their household finances to improve over the next year.

“To an extent, this suggests that consumers are cognisant of the adverse implications that factors like high levels of load shedding, Transnet’s logistical constraints and a tightening in fiscal policy hold for economic growth in South Africa. However, rightly or wrongly, they do not expect flagging economic growth to lead to an equivalent deterioration in their own financial positions,” she said.