South African consumer confidence still positive

Out of a possible index total of 100, the South African MasterIndex declined from a record-high of 91.1 for the second half of 2006, to 86.5 for the first half of 2007, to 80.7 in the latest survey result.

Conducted bi-annually in selected markets in South Asia, Middle East and Africa (SAMEA), the MasterIndex survey analyses consumers' perceptions of economic conditions for the next six months. The survey has a range of 0 to 100, with 50 as the mid-point. A score above 50 indicates that consumers are optimistic about the overall economic environment, while a score below 50 signals that consumers are pessimistic about the economic environment.

The countries surveyed include South Africa, Egypt, Kuwait, Lebanon, Saudi Arabia, the United Arab Emirates (UAE) and India. The scores are based on respondents' answers to questions relating to five key economic barometers: Employment, Economy, Regular Income, Stock Market and Quality of Life. Bi-annual MasterIndex surveys have been held across SAMEA for the past three years and across Asia Pacific for the last 15 years.

The category that South Africans were most positive about was Regular Income. When asked: “Do you expect your regular income to increase, remain the same or decrease?” nearly 53% said that they were expecting it to increase, with only 6.3% expecting it to decrease, resulting in a MasterIndex score of 89.3.

Factors influencing consumer confidence

The largest declines in confidence from the second half of 2006 were to be found in the Stock Market indicator (90.9 to 66.8) and the Quality of Life indicator (89.8 to 77.9). The only country in SAMEA that showed a greater decline compared to South Africa in the Quality of Life indicator was Lebanon.

“The drop in consumer confidence can be largely attributed to the fact that when the survey was undertaken, South Africans had seen four interest rate hikes, petrol prices had recorded huge upward movements and there were signs that inflation was starting to rise substantially,” said Mike Schussler, Chief Economist at T-Sec.

He continued, “The Quality of Life category may have had the second-largest decline for South Africa, but we believe this fall will be more permanent than the 24-point fall in the more volatile stock market confidence indicator which was going through a small correction from a record high at the time when the questions were asked. With South Africa's Gross Domestic Product (GDP) growing by 5.1% in 2006 (the highest growth rate in two decades) one could have expected a more solid performance from the Quality of Life indicator. But consumer complaints in South Africa are starting to go beyond dinner table conversations and into the real economy, as rolling blackouts and increasing traffic congestion indicates to consumers that their quality of life may not be as good as they think.”

The Employment and Economy indicators were only slightly more negative than one year ago, down 4.1 and 3.5 points respectively, although the Economy indicator did show an increase in comparison to the previous six-month period from 86.3 to 88.2.

Still a high level of confidence

Schussler said that the decline in the Employment indicator was backed-up by that fact that there had been a recent fall in the growth of job adverts after five years of job sector growth. Commenting on the Economy indicator he said that although South Africans had noticed a slight economic slow down, the reality was that the economy was still in a record-breaking growth phase and this was still supported by the high level of optimism shown by South Africans.

“South Africans are maintaining a high level of consumer confidence despite bad news courtesy of record-high petrol, food and electricity prices, political tensions and, of course, the absence of the cricket world cup in South Africa's trophy cabinet,” he added. “They are however, certainly more aware that not everything is running like clockwork due to the increase in bad news over the last six months.”

While this latest survey has shown a notable decline in South African consumer confidence, the current MasterIndex of 80.7 is on par with South Africa's historical average of 79.4 and Grobler emphasized that this showed that South African consumer confidence remains very positive.

Slight drop, but still high

Any confidence index over 50 is positive. While this MasterIndex does show a decline, we have to remember that one year ago the survey found that local consumer confidence was at a record high of 91.1. It was extremely unlikely that an improvement on that index could have been achieved,” Grobler concluded.

Of the seven countries researched in the region, South Africa dropped from the third to the fifth most optimistic country overall in just six months, with Egyptian, Saudi Arabian, Kuwaiti, and UAE consumers being more optimistic. Only Indian and Lebanese consumers were less optimistic than South Africans were.

“As a leader in advancing commerce globally, MasterCard is delighted to share with the business community the insights provided by this survey, and to provide a platform for the discussion on indicators of economic turning points, as well as the business opportunities and challenges ahead. The current MasterIndex consumer confidence score remains high despite a slight drop in confidence over the last two surveys,” said Eddie Grobler, Senior Vice President & General Manager, Africa, MasterCard Worldwide.

MasterIndex of Consumer Confidence – South Africa 2H 2007 table