News in South Africa 23rd March:

1. Extreme concern among consumers:

South African consumers are highly stressed and hold no high hopes for an easier time in 2023, the latest FNB/BER Consumer Confidence Index (CCI) shows – but wealthier consumers, with the greatest spending power, are the most down in the dumps.

Extreme concern among consumers
Photo by Nicola Barts

After showing some recovery in the fourth quarter of 2022 – jumping from an index score of -20 to -8 – the index has plummeted to -23 points in the first quarter of 2023.

The reading of -23 is the third lowest CCI reading on record since 1994 and indicates extreme concern among consumers about South Africa’s economic prospects and household finances, FNB said.

“The latest reading is broadly in line with the extraordinarily weak consumer confidence level recorded during the third quarter of 2020 – also -23, during a time of level 3 Covid restrictions, alcohol bans, school closures and curfews – as well as the second quarter of 2022, which was -25, when deadly floods devastated KZN and the economic ramifications of the Ukrainian war started to manifest,” FNB said.

The consumer confidence index score is expressed as a net balance, and reflects consumers’ views on the economy and willingness to spend.

A low level of confidence indicates that consumers are concerned about the future. They may be worried about job security, pay raises and bonuses. With such a frame of mind, consumers tend to cut spending to basic necessities (e.g. food and services) to free up income for debt repayment.

Red across the board

All three sub-indices of the CCI declined dramatically during the first quarter of 2023.

The economic outlook and time-to-buy durable goods sub-indices of the CCI dropped by 15 and 17 index points, respectively, and, at -34, are now both deep in negative territory.

The vast majority of consumers, therefore, expect a deterioration in South Africa’s economic growth over the next 12 months and consider the present time as highly inappropriate to purchase durable goods e.g. vehicles, furniture, household appliances and electronic goods.

The household financial outlook sub-index of the CCI fell 14 index points to -1 during the first quarter, reversing the gains made during the 2022 festive season.

“While consumers no longer expect their household finances to improve over the next year, they are nevertheless considerably less pessimistic about their own financial prospects compared to their gloomy expectations for the economy in general,” FNB said.

2. IMF – bleak forecast:

The International Monetary Fund (IMF) on Wednesday announced a bleak forecast for SA for 2023, with economic growth projected to reach only 0.1%.

Its forecast for the medium term is only a little better, with growth of 1.5% expected, well below the 1.7% rate of population growth. This means South Africans will continue to get poorer per capita, with poverty and inequality set to rise. 

The IMF also disagreed with the National Treasury’s budget framework, pointing out that contrary to claims that the budget deficit would narrow, it expected the deficit to widen.

The assessment was performed for the IMF’s annual review of the country. 

The weak growth outlook, which it said was driven by power cuts, lower commodity prices, and an unfavourable global environment, is considerably more pessimistic than the National Treasury in the February budget. The Treasury projected growth of 0.9% for 2023, 1.5% in 2024, and 1.8% in 2025. It is also more pessimistic than that of the SA Reserve Bank, which in January slashed its forecasts, predicting growth of 0.3% for this year and 0.7% and 1% for the two years ahead. 

In a statement following the review, the IMF said: 

South Africa’s economic and social challenges are mounting, risking stagnation amid an unprecedented energy crisis, increasingly binding infrastructure and logistics bottlenecks, a less favourable external environment, and climate shocks. A recovery in the services sector supported job creation in 2022; however, employment remains below pre-pandemic levels, and unemployment is close to record highs on the back of already high poverty and inequality.

3. Fed opts for hike-and-see:

Less than two weeks after the second-biggest bank failure in US history, Federal Reserve Chair Jerome Powell made clear that inflation remains policymakers’ top concern.

The Fed chief advised that more Fed tightening may be in store after Wednesday’s interest-rate hike, and that the central bank will raise rates higher than expected if needed. In a press briefing, he also said officials don’t expect to be cutting rates this year — even as the bond market showed traders doubling down on that outcome.

Sourced from: Moneyweb

Officials are making a calculated risk that, while the recent banking turmoil will likely slow the economy, it won’t mushroom into a broader financial meltdown. While their predecessors got a similar calculation wrong in 2007, regulators are counting on higher capital and liquidity standards, and a more muscular response, to ring-fence problems today.

“They think they have the tools in place to contain the turmoil in the banking system,” Wells Fargo Chief Economist Jay Bryson said. “There certainly is a risk that this could be a bad decision.”

Powell, during the press conference Wednesday, repeatedly noted uncertainty about the spillover effects from the banking-sector problems on lending. He also shared his impression of the speed at which events unfolded, with “a very fast run” on Silicon Valley Bank that left regulators asking themselves, two weekends back, “How did this happen?”

4. Load shedding to blame for 13.6% food inflation:

Economists said the latest inflation reading came as a surprise – following previous decreases in the rate.

Statistics South Africa on Wednesday announced that inflation edged higher to 7% for February as load shedding continued to add to the cost of food production.

This is the first increase in four months. The biggest contributor to the rising inflation is red-hot food prices.

Consumer inflation dropped from 7.4% to 7.2% in December 2022. It dropped again in January, down to 6.9% making it the lowest reading since last May.

But this time around, economists had projected it would either remain the same or continue to cool for a fourth consecutive month.

Nedbank economist Isaac Matshego said load shedding was among the factors to blame for the 13.6% rise in food inflation – which accounts for the largest portion of the total consumer inflation.

“Load shedding has compelled producers, particularly in food production, to rely on petrol and diesel to run generators which is more expensive to operate so that is adding to the cost pressures.”

Econometrix economist Azar Jammine said it’s also worrying that the core inflation rate, which excludes food and fuel, also came in higher.

“That suggests that there is more to the inflationary process.”

5. Power cuts case continues:

Hospitals, schools and police stations should be fully exempted from power cuts.

That’s the argument by political parties and unions who have taken government to court.

The 19 litigants want blackouts declared unconstitutional.

They also want government to provide immediate relief to crucial sectors.

The parties — which include Numsa, SAFTU and opposition parties, among others — presented their arguments at the Pretoria High Court on Wednesday.

The case continues on Thursday.

All information sourced from articles posted by: BusinessTech, Fin24, Moneyweb, EWN, and eNCA.

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