South African consumers still confident

Results of the latest MasterCard Worldwide Index of Consumer Confidence for the first half of 2008 show that consumer confidence in South Africa remains optimistic, despite a minor decrease from last year.

Out of a possible score of 100, the South African Index score decreased from 86.5 for the first half of 2007, to 83.7 in the latest survey result. However, the bi-annual survey did show a slight increase in consumer confidence when compared to the previous index score of 80.7 for the second half of 2007.

"The MasterCard Index is a credible, tried-and-tested barometer of historical South African consumer sentiment and trends," said Eddie Grobler, general manager, Africa, MasterCard Worldwide. "When used as a barometer of consumer sentiment, the Index provides valuable understanding in the shifts of consumer sentiments, as well as, the identification of market trends over time. The current Index score remains high despite a slight drop in confidence over the last year."

Over 50, optimistic; under 50, pessimistic

The survey, conducted twice a year in selected markets in South Asia, the Middle East and Africa (SAMEA), analyses consumers' perceptions of economic conditions for the upcoming 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 they are pessimistic about the economic environment.

The markets surveyed are Egypt, India, Kuwait, Lebanon, Saudi Arabia, South Africa and the UAE. The scores are based on respondents' answers to questions relating to five key economic indices: Employment, Economy, Regular Income, Stock Market and Quality of Life.

The South African survey focuses on the three urban areas of Johannesburg, Cape Town and Durban, and reveals that Durban, with a score of 86.1, is the most optimistic of the three. Johannesburg and Cape Town had Index scores of
84.9 and 78.9, respectively.

Regular income counts for a lot

The category that South Africans were most positive about was Regular Income. When asked whether they expected their regular income to either increase, remain the same or decrease, nearly 55% of the respondents said that they were expecting it to increase, while only 6.8% said that they expected it to decrease. This resulted in a score of 89.0, which, while still high, marks a decline of 7.8 from the first half of 2007.

"The drop of nearly eight points in consumers' confidence in Regular Income illustrates that some people are finding it harder to attract a regular income. This, combined with the decline in the Economy indicator from 88.2 to 81.9, indicates that consumers are starting to feel the pinch of higher interest rates, which started increasing in June 2006," said Mike Schussler, Chief Economist at T-Sec.

Consumers watch the markets

The highest increases in confidence compared to the previous Index for the second half of 2007 were found in the Stock Market (66.8 six months ago to 83.0) and the Quality of Life indicators (77.9 a period ago to 82.9).

"The jump in consumer confidence in the stock market seems to indicate that people observe the markets very closely, and, as the Johannesburg Stock Exchange bounced back from its August 2007 dip, consumers took note," continued Schussler. "This suggests, however, that when the next results are released, these same consumers may more than likely be more concerned about the stock market after its more recent declines in December 2007 and January 2008."

Schussler said that the moderate increase in the Quality of Life category indicated that consumers were still very content with their overall situation in life. An example given was that according to the South African Advertising Research Foundation's AMPS survey 2007, more than 85% of South African households now have electricity, up from 49% in 1989. As a result and despite some negative indicators, including a high crime rate, people were still buying electric appliances such as TVs, HiFis, DVD players and so on, and were sensing an overall improvement in their quality of life.

Inflation moderating

The Employment indicator was slightly more negative compared to a year ago, down 1.4 points, although it did show a marginal increase in comparison to the previous six-month period from 81.2 to 81.9.

Schussler commented that, while petrol and food price inflation grew in 2007, there was evidence that inflation was moderating a little and that this, combined with the fact that economic growth remained above 4% for the first three quarters of 2007, resulted in the relatively high level of optimism shown by South Africans.

Schussler did, however, expect that higher interest rates and continued inflation, as well as the fact that the survey was undertaken before the major electricity shortages affected the country, would affect future consumer confidence figures.

While the latest Index shows only a slight increase in South African consumer confidence and is significantly lower than its peak of 91.1 from the second half of 2006, the current Index of 83.7 is on par with South Africa's historical average of 79.6, and Grobler emphasized that this showed that South African consumer confidence still remains optimistic.

"Any confidence score over 50 is positive. An Index score of 83.7 indicates that South African consumers are very optimistic, and the Index shows that this optimism is spread across all five of the categories measured," concluded Schussler.

Of the seven markets researched in the region, South Africa climbed from the fifth to the fourth most optimistic country overall in just six months. Lebanese consumers continue to be the least optimistic; while Egyptian and UAE consumers have become less optimistic about the next six months. Kuwaiti, Saudi Arabian and Indian consumers are more optimistic than South Africans are.