Structural factors to keep consumer finances fragile

Cyclical factors kept consumer finances in a fragile state, with structural factors becoming main risks to consumer finances in the third quarter of 2023 (Q3 2023).  Key consumer informants identified structural impediments such as a) political instability and corruption; b) the well-known triad of unemployment, poverty, and inequality; in addition to c) loadshedding as key risks to building on the improvement in the state of consumer finances which occurred in the third quarter of 2023 (Q3 2023). The CFVI increased to 50.9 points in Q3 2023 from 49.3 points in Q2 2023, mainly due to a more upbeat cyclical economic environment, driven by encouraging CPI, interest rate and income earning developments.

The CFVI as measured from the views of consumer key informants who deal with consumers daily increased to 50.9 points in Q3 2023 from 49.3 points in Q2 2023 and 49.7 points a year ago.  This deemed consumers to be less financially vulnerable in Q3 2023, although still in despair.

The improvement in the CFVI and its four sub-indices was driven by an increase in consumers’ access to an income via both employment and transfers from family and friends. This had a positive domino-effect on the other three subcomponents. Although consumers still limited their purchases, the better income combined with lower CPI contributed to an improvement in the expenditure index as they were better able to afford their expenses. Likewise, combined with stable interest rates, the higher income improved consumers’ ability to service their debt, though they were still vulnerable in this department. Similarly, the improved access to more income, combined with being better able to afford expenses and debt service costs, created room for emergencies saving. However, consumers were not yet in a position to contribute more to retirement savings, causing the saving index to remain below 50 points.

Economic and consumer finance outlook

A mixed economic and personal finance outlook for Q4 2023 was revealed. Consumer key informants are still overwhelmingly negative, but their outlook for CPI and consumer finances improved compared to Q3 2023, while they were most negative on the global economic outlook. The following were the majority views for Q4 2023:

• 4% expect consumer finances to remain at the current vulnerable level or worsen.
• 9% anticipate general prices to increase, whether at the same rate or a slightly slower pace.
• Around 82% expect the global and domestic economic situation to remain the same or worsen.
• 1% foresee an unchanged or worsening unemployment situation.

When the effect of cyclical factors on consumer finances subsides, structural factors normally re-emerge as the biggest risks. This is confirmed by the risks expected to exercise the biggest pressure on consumer finances in Q4 2023 – as indicated by chart 2. Persistent unemployment, poverty, and inequality and continuous loadshedding are expected to be the highest risks to consumer finances in Q4 2023. Although another structural risk, political instability and corruption, moved down to the fourth highest risk, this should be viewed in context. It is a relative issue – its risk measurement was at the exact same level as in Q2 2023, but other factors are expected to become even higher risks in Q4 2023.

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Watch interview with Gareth Edwards from ENCA | 27 October 2023