Why consumer confidence rebounded in fourth quarter

Consumer confidence in South Africa has shown signs of improvement despite facing a myriad of economic challenges, according to the latest FNBBE consumer confidence index. The index revealed a 12-point improvement, though still remaining in negative territory, indicating that consumers are under pressure. Annabel Bishop, Chief Economist at Investec, and Mamello Matikinca-Ngwenya, Chief Economist at FNB, joined CNBC Africa to dissect the numbers and shed light on the underlying reasons behind the resurgence in consumer confidence. The surge in confidence is attributed to a buoyant labor market, particularly in the service sector, which has uplifted sentiments among low-income households. While the improvement is noteworthy, the index still hovers in negative territory, highlighting the challenges faced by consumers. The willingness to spend is present, but the ability to do so remains a hurdle, especially with escalating interest rates and inflation rates. Matikinca-Ngwenya pointed out that the lower income group displayed a surprising level of optimism, likely fueled by increased employment opportunities in the service industry following the easing of COVID-19 restrictions. However, she cautioned against expecting sustained improvement in confidence, given the prevailing headwinds in the consumer landscape. The economic outlook and time to buy durable goods sub-indices also saw improvements during the fourth quarter, indicating a slightly less negative sentiment among consumers. Despite the rebound in these sub-indices, overall consumer confidence remains in negative territory, signaling a cautious outlook on the future. Both economists addressed the impact of the early interest rate hikes by the central bank and the anticipated outcomes. Matikinca-Ngwenya highlighted that the interest rate increases have started to impact consumer sentiment, especially among highly indebted individuals who are sensitive to rate hikes. However, she noted that the full effect of the rate hikes may not be immediately reflected in macroeconomic data, requiring more time to materialize. Bishop defended the central bank's decision to raise rates early in response to rising inflation, both globally and domestically. She acknowledged the challenges posed by unforeseen events such as the Russian-Ukrainian conflict, which triggered spikes in commodity prices, further fueling inflation. Despite the hindsight critique, Bishop emphasized the difficulty of predicting such events and the need for a cautious approach. Looking ahead, both economists emphasized the importance of monitoring consumer sentiment and economic indicators in the coming months to assess the impact of policy measures and external factors on the economy. While the uptick in consumer confidence is a positive sign, sustained improvement will depend on a variety of factors, including the trajectory of interest rates, inflation levels, and overall economic stability. In conclusion, the FNBBE consumer confidence index provides valuable insights into the evolving consumer landscape in South Africa and offers a glimpse into the complex interplay of economic factors shaping sentiment and spending patterns.