MasterCard survey: SA consumer confidence declines

Results of the latest MasterCard Worldwide Index of Consumer Confidence for the second half of 2009 reveal that South African consumer confidence has fallen 11.4 points to its lowest level since 2004 with a score of 67.3.

The results also show an overall decrease in consumer confidence year-on-year, when compared to the Index score of 74.3 for the second half of 2008. This is well below South Africa's historical average of 79.4.

“The decline is consistent with the ongoing global recession as well as the more recent news that South Africa's economy is in its first technical recession in 17 years,” said Anthony West, General Manager - Africa, MasterCard Worldwide. “South African consumers nevertheless remain optimistic—and far more so than nearly all of the 21 markets included in the survey.

“While this was South Africa's second-steepest decline in five years, the country appears to be holding up relatively well in comparison to other markets throughout the Asia-Pacific, Middle East, and Africa (APMEA) region,” he continued.

The MasterCard Worldwide Index of Consumer Confidence—now in its fifth year in South Africa—is designed to assess consumer outlook towards the next six months.

It is released twice a year and is based on a survey that asks participants questions relating to five key economic factors: employment, economy, regular income, stock market, and quality of life.

Valuable understanding

This latest survey, involving face-to-face interviews with 600 South Africans, was conducted between 23 March and 18 April, 2009. The Index and its accompanying report do not represent MasterCard Worldwide's financial performance.

The Index has a range of zero to 100. A score above 50 indicates that consumers are optimistic in their outlook towards the next six months, whereas a score below 50 indicates that they are pessimistic.

“The Index provides valuable understanding in the shifts of South African consumer sentiment, as well as the identification of market trends over time. The Index score shows that consumers remain positive despite a considerable drop in confidence over the last six and twelve months respectively,” West explained.

The South African survey focuses on the three urban areas of Johannesburg, Cape Town and Durban. With a score of 68.0, Durban is South Africa's most optimistic city for the second time in a row.

However, for the first time in two years, Cape Town, with a score of 66.7, was more optimistic than Johannesburg, which reported an all-time low of 66.5.

Building, traffic delays to blame?

Mike Schussler, CEO at Economists.co.za believes that a reason for the 16.8 point decline in Johannesburg's overall confidence levels from a level of 83.3 six months ago could be due to the fact that most multinational companies are based in the greater Johannesburg area, and have been feeling the pinch of the global recession more so than local companies.

Noting a particularly steep decline in Johannesburg's Quality of Life score from 81.1 six months ago to a current score of 61.9, Schüssler suggests that all the major building and road construction delays and traffic jams may to be blame.

Cape Town's Index score is up 9.4 points from its low of 57.3 reported six months ago- albeit short of where it was a year ago at 72.8. Four of the five factors experienced an overall increase, with only the stock market indicator declining by a small margin from 43.5 to 41.4. Although declining 21.6 points, Durban is holding up relatively well amidst the economic slowdown.

Overall, South Africa reported lower scores on each of the five factors that make up the Index. Experiencing the greatest decline was the Stock Market category. When asked whether they think the local stock market will go up, remain the same, or go down over the next six months, 64% of the survey's respondents expected it to remain the same or go down. Only 36% expected it to go up.

This resulted in an Index score of 53.7 which is only marginally optimistic, and is down 18 points from six months ago, and 16 points from a year ago. It is also the lowest score ever recorded for this category in South Africa.

Consumers seem hopeful of upturn

The indicator score measuring outlook towards the economy also declined from 79.4 six months ago to a current score of 64.5. However, when asked whether or not they expect South Africa's economic performance to be better, remain the same, or get worse over the next six months, 49 % expect it to be better, with only 27% expecting it to be worse,

“With the survey having been conducted just before the 6.4% contraction in South Africa's gross domestic product (GDP) was announced recently, it seems that most consumers feel the economy will make a turn and start heading upwards,” says Schüssler. “Interest rates have also come down by 450 basis points since December, contributing to the positive outlook for the economy over the next six months.”

South Africa's Regular Income score, which has historically been the factor that South Africans report feeling the most optimistic about, is well off its historical average of 91.6. Although South Africa's current score of 83.3 is an all-time low, it is still very optimistic and important to note that in no other market was a higher score reported.

“Still the highest confidence for South Africans is the ability to get a regular income,” Schüssler adds. “More than 13 million people now receive a social grant every month, which seems to underpin much of the confidence South African consumers are optimistic about.”

We're less confident than usual, but…

The Outlook on Employment category experienced an 8.6 point decline to a current score of 67.1. Schüssler believes that this decline is as a direct result of major job losses experienced across the mining, automotive and manufacturing sectors that have felt the brunt of the recession of late.

The Quality of Life category also experienced a decline, however, at 67.9, it is South Africa's second most optimistic indicator. Schussler said that the moderate decrease in the Quality of Life category indicated that consumers however, were still content with their overall situation in life.

Although South Africans are much less confident than they usually are, they are considerably more optimistic than the majority of consumers throughout the APMEA region.

With consumer confidence having fallen from 56.9 to 44.1 since the last survey was conducted, consumers in the APMEA region are, for the first time since 2004, pessimistic about what the next six months has in store for them.

Markets show declines

Leading this decline were markets such as Hong Kong, Singapore, and the UAE, each of which experienced declines of over 50 points from where their consumer confidence scores were a year ago. In total, 16 of the 21 APMEA markets saw declines in their consumer confidence scores—with an average fall from an optimistic 56.9 to a pessimistic 44.1.

The declines were so extensive that South Africa is currently one of just seven markets that remains optimistic (i.e., have a consumer confidence score above 50). In fact, South Africa's score is the region's third highest—only the consumers in India and Qatar (68.0 and 71.4, respectively) are more optimistic.

Dr. Yuwa Hedrick-Wong, economic advisor to MasterCard Worldwide in Asia/Pacific said: “The impact of the global economic crisis on Asia has been massive, with exports declining steeply in most Asian markets, in some cases up to 40% between the June 2008 and March 2009. Currently market conditions continue to be volatile; and a high level of uncertainty persists as to what the future may hold.”

“South Africans are still bullish despite the recession,” Schüssler said. “It is important to note that a score above 50 is still optimistic, albeit not at the levels we have experienced in the past.

“As our new finance minister, Pravin Gordhan, recently commented, South Africa appears to be among the least worse off market in the world to be affected by the recession,” he concluded.

Middle East and Africa

• The average consumer confidence score of markets in the Middle East and Africa (53.9) has dipped from six months ago (74.0) and a year ago (68.2). This is also lower than its historical average of 75.3.
  
• Overall consumer outlook has fallen across the five indicators that make up the Index compared to six months ago: Employment (54.7 vs. 73.2 six months ago), Economy (53.1 vs. 74.4 six months ago), Quality of Life (54.4 vs. 75.0 six months ago), the Stock Market (40.0 vs. 60.8 six months ago) and Regular Income (67.4 vs. 86.9 six months ago).
  
• Four out of the seven markets surveyed - Lebanon, Qatar, Saudi Arabia and South Africa - are optimistic about the second half of 2009. Qatar tops the Index with a score of 71.4. Although still optimistic, consumer confidence levels in all four markets have dropped from six months ago: Lebanon (64.4 vs. 69.1 six months ago), Qatar (71.4 vs. 76.2) Saudi Arabia (67.1 vs. 72.4) and South Africa (67.3 vs. 78.7).
  
• The most pessimistic markets in the Middle East and Africa are Egypt (32.3 vs. 55.6 six months ago) and United Arab Emirates (29.6 vs. 75.4 six months ago). Overall consumer outlook for both Egypt and U.A.E. has fallen across all five indicators that make up the Index compared to six months ago.

Asia/Pacific

• The average consumer confidence score of markets in the Asia/Pacific (38.7) has dipped from six months ago (47.4) and a year ago (56.0), though it is higher than the 1997-98 Asian economic crisis average of 32.3.
  
• Overall consumer outlook has fallen across the five indicators that make up the Index compared to six months ago: Employment (30.3 vs. 41.2 six months ago), Economy (38.7 vs. 42.1 six months ago), Quality of Life (39.2 vs. 44.0 six months ago), the Stock Market (41.1 vs. 45.5 six months ago) and Regular Income (44.2 vs. 64.3 six months ago).
  
• Only three out of the 14 Asia/Pacific markets surveyed - China, India and Vietnam - are optimistic about the second half of 2009. India (68.0) has the highest score among the Asia/Pacific markets, with Indian consumers optimistic about Regular Income (70.0) and Quality of Life (74.5).
  
• While China (60.8) and Vietnam (60.9) remain optimistic about the second half of 2009, they are less optimistic than they were six months ago (China at 76.6; Vietnam at 88.1).
  
• Ten Asia/Pacific markets are pessimistic about the second half of 2009, with Singapore (31.2 vs. 62.3 six months ago), Vietnam (60.9 vs. 88.1 six months ago), Australia (24.1 vs. 49.0 six months ago) and Hong Kong (24.7 vs. 41.8 six months ago) recording the biggest decline in confidence scores. Indonesian consumers have turned from pessimism to being neutral in their outlook (49.2 vs. 38.5 six months ago).

More information on the Index can be found at www.masterintelligence.com.