Sizwe Nxedlana, chief economist at FNB. Picture: FINANCIAL MAIL
Sizwe Nxedlana, chief economist at FNB. Picture: FINANCIAL MAIL

CONSUMER confidence plunged to a nine-year low in the first quarter of this year, a key survey showed on Tuesday, adding to negative news on the retail sector and fanning concern that growth in the economy could fall short of expectations this year.

Household spending is the economy’s main growth engine, accounting for 60% of overall output, and was instrumental in driving it out of recession in 2009.

According to an index compiled by the Bureau for Economic Research (BER) and sponsored by First National Bank (FNB), consumer confidence fell to -7 points from -3 in the fourth quarter of last year.

“Not even at the height of the global financial crisis in 2008 were consumers as downbeat about the country’s economic prospects and their household finances as they are now,” FNB chief economist Sizwe Nxedlana said.

“Whereas the growth in household consumption expenditure was the mainstay behind the domestic economic recovery between 2010 and 2012, growth in consumer spending is expected to be subdued and much less supportive of economic growth in 2013,” he said.

Meganomics economist Colen Garrow said the fall in the index backed his view that economic growth would slow this year, rather than accelerate, as most expect. He thinks growth could slow to 2.3% from 2.5% last year.

“It is worrying as without high levels of confidence we won’t get meaningful improvements in economic growth and the labour market. There are too many reasons stacked against growth being better than last year,” he said.

Both the Treasury and the Reserve Bank have predicted that the economy will grow by 2.7% this year, bolstered by an improvement in the global environment.

Standard Bank economist Shireen Darmalingam said in a research note that given the notable historical correlation between consumer confidence and household consumption, the FNB/BER index posed “downside risks” to economic growth.

“Standard Bank expects GDP (gross domestic product) growth to remain unchanged at 2.5% in 2013,” she said.

During the first quarter of this year there was a significant deterioration in consumer expectations about the performance of the economy, their financial prospects, and whether or not it was the right time to buy durable goods, Mr Nxedlana said.

The worsening outlook for fixed investment and job creation after violent wildcat strikes in the mining, transport and agricultural sectors, as well as threats of power failures in coming months, was undermining confidence, he said.

Higher inflation and slower growth in credit extension were also weighing on the financial position of households, he said.

“The low reading for the consumer confidence index in the first quarter is entirely consistent with other data … that suggests that households are struggling,” Absa Capital economist Peter Worthington said. “A sharp deceleration in consumer spending will act as a powerful headwind against growth this year.”

The consumer survey follows a separate poll by the BER last week, which showed that business confidence improved in the first quarter of this year, but not strongly enough to suggest the start of an upward trend.

Confidence in the retail sector deteriorated, in line with official figures showing that growth in retail sales slowed sharply at the start of this year. Car sales have also slowed significantly.

While income tax cuts announced in the 2013 budget would bring some relief to low- and middle-income households, they would not be enough to counter the effects of weak job creation, higher inflation and slower growth in social grant spending by the government, Mr Nxedlana said.

He pointed out that there were signs that growth in unsecured lending was slowing — especially among low-income consumers.

With their financial position at a five-year low of 0 points, low- income households earning less than R5,000 per month were significantly more pessimistic about the outlook for their finances than high-income households, which had a reading of 9, the FNB/BER index showed.

The sub-index rating the right time to buy durable goods, fell from -12 to -15 index points in the first quarter.

 “The combination of deteriorating real disposable income growth, slower credit extension and higher prices for imported durable goods probably persuaded many consumers to postpone their durable goods purchases,” Mr Nxedlana said.

Growth in disposable income slowed to 2.4% in the final quarter of last year from 4.4% in the first quarter, according to figures from the Bank. Over the same period, growth in household consumption slowed to 2.4% from 4%.