Out of a possible score of 100, the South African Index score decreased from 83.7 for the first half of 2008 to 74.3 in the latest survey result - one of the greatest declines in consumer confidence since the Index was introduced in 2004.
The bi-annual survey also showed a decrease in consumer confidence year-on-year, when compared to the Index score of 80.7 for the second half of 2007.
“The Index provides valuable understanding in the shifts of South African consumer sentiment, as well as the identification of market trends over time. The current Index score shows that consumers remains positive despite a considerable drop in confidence over the last six and twelve months,” said Eddie Grobler, Senior Vice President and General Manager - Africa, MasterCard Worldwide.
The survey, conducted by a third party research company on behalf of MasterCard, is designed to gauge consumer sentiment for the six months ahead. Respondents were interviewed in person or over the phone. The survey information relates to consumer perceptions on economic trends only and does not constitute a projection of the business or financial performance of MasterCard Incorporated or its affiliates.
Conducted twice yearly in selected markets in South Asia, the Middle East and Africa (SAMEA), the survey analyses consumers' perceptions of economic conditions for the upcoming six months. The eight markets surveyed include Egypt, India, Kuwait, Lebanon, Qatar, Saudi Arabia, South Africa and the UAE, and 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 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.
The South African survey focuses on the three urban areas of Johannesburg, Cape Town and Durban and reveals that Johannesburg, with a score of 75.9, is the most optimistic of the three cities. Durban and Cape Town had Index scores of 73.8 and 72.9, respectively. Durban consumers, previously the most optimistic of the three just six months ago, experienced the largest decline in confidence, dropping by 12 points from a high of 86.1.
Johannesburg reclaimed the title of ‘most optimistic city' from Durban primarily due to higher consumer confidence scores in the Employment and Regular Income categories of the survey.
“It is my opinion that the golden era of consumer confidence in South Africa is beginning to lose its shine,” said Mike Schussler, Chief Economist at T-Sec. “While it is important to note that the Index is still positive at 74.3, the fact remains that the Index dropped by 6.4 points year on year, and by 9.4 points in the last six months. This makes South Africa the third-least optimistic of the eight countries surveyed.”
“South Africans are feeling a little uncertain about the future. High inflation figures are fuelling the higher interest rates that consumers are acutely aware of. They are also feeling the effects of lower property values, higher food and petrol prices, and they are expecting further electricity price and interest rate hikes,” he continued.
The category that experienced one of the biggest declines was the Economy. When asked whether they expected the economic performance of South Africa to be better, remain the same, or worsen over the next six months, nearly 48% said that they expected it to remain the same or worse. 52% of the respondents said that they were expecting it to be better
This resulted in a category score of 70.5, which, though still high, marks a decline of 17.7 points from the second half of 2007, and of 11.4 points from the first half of 2008.
“Although over 50% of respondents still believe that the economy is going to grow, the number of respondents who felt that the economy would decline nearly doubled in the space of just six months,” Schussler said. “My sense is that, in general, consumers are still confident about the prospects of South African economic growth - they just feel that it will now grow at a much more leisurely rate.”
Schussler noted that this feeling may in part be attributed to the recent decline in South Africa's GDP growth rate. From a rate of 5.3% in the fourth quarter of 2007, GDP growth slowed considerably to 2.1% in the first quarter of 2008.
Other noteworthy decreases in confidence compared to the previous Index were found in the Stock Market indicator (83.0 six months ago to 69.8), the Quality of Life indicator (82.9 six months ago to 71.2) and the Employment indicator (81.9 six months ago to 72.9).
Schussler said that the stock market went through a significant dip immediately before the survey period and that he was of the opinion that consumers were strongly led by current financial news when expressing their opinions on the stock market.
“Again, though, it is important to note that the stock market reached record highs immediately after the survey period, so we expect the Stock Market indicator to remain positive in the future. And, year-on-year, consumers' view of the stock market actually improved by over two points, reflecting the highs that the stock market has achieved during 2007/8.”
With regards to the eight-point decline in the Employment indicator, Schussler said that this had much to do with the fact that employment growth in South Africa has been slowing down and that rumours of job losses in the mining and manufacturing sectors have received a lot of coverage in the media.
“The Quality of Life category also saw a fall, but one must remember that this category is wider than just economic confidence and has to do with secondary factors such as traffic congestion, safety, and electricity outages,” he said.
The one continuing surprise in the survey, according to Schussler, was the fact that the respondents' expectation of an increase in their regular income remains very optimistic. He speculated that this may be due to the fact that social welfare payments have not been affected by the current slowdown in the economy.
Although Grobler concluded by saying that an Index score of 74.3 demonstrated that South African consumer confidence still remained optimistic, he did say that the latest Index was significantly lower than its peak of 91.1 for the second half of 2006, and below the Index's historical average of 80.1 - illustrating the fact that this optimism is not as high as it has been.
Of the eight markets surveyed, South Africa dropped from the fourth to the sixth most optimistic country in just six months. Currently, only Lebanese and Egyptian consumers are less optimistic than their South African counterparts. Kuwaiti, Qatari, UAE, Indian, and Saudi Arabian consumers were all more optimistic about the forthcoming six months than South Africans.
