The South African Consumer

Summary

The South African consumer faced an unexpected downturn in 2018, with a sharp 1.3% contraction in household spending, particularly in durable and semi-durable goods. This follows a period of relatively stronger consumer performance in 2017. The economic outlook for consumers remains bleak due to persistent challenges, including significant tax hikes implemented in the 2018 budget. With increased VAT, fuel levies, and personal income taxes, consumer wallets are under increased pressure. These measures, which totaled 23 billion rand, aim to stabilize public finances but are expected to further constrain household spending well into 2019.

Takeaways

• 😀 The South African consumer showed unexpected resilience in 2017 and early 2018, outperforming economic expectations despite weak overall confidence.
• 😀 Unfortunately, household consumption contracted sharply in Q2 2018, as reported by Statistics South Africa, with a 1.3% quarter-on-quarter decline.
• 😀 This contraction was the first since early 2016 and particularly affected household spending on durables (e.g., white goods) and semi-durables (e.g., clothing).
• 😀 Consumers tend to reduce spending on non-essential items like appliances and clothing when facing financial pressure, leading to declines in these categories.
• 😀 The outlook for the South African consumer remains bleak, with persistent challenges expected in the second half of 2018 and into 2019.
• 😀 Headwinds include significant tax increases, such as a 1% VAT hike and increases in fuel levies and personal income taxes, all taking effect in April 2018.
• 😀 The total tax increases amounted to 23 billion rand, or 0.5% of GDP, effectively redirecting a significant portion of consumer spending to the government.
• 😀 These tax measures aim to help stabilize South Africa’s budget deficit and public debt, but they further strain consumer finances.
• 😀 Given these economic pressures, household budgets remain under intense strain, limiting the potential for strong consumer recovery in the short term.
• 😀 The contraction in household spending could signal a broader economic slowdown, with lingering impacts expected in the latter part of 2018 and into 2019.

Q & A

What was the initial trend in South African consumer behavior during 2017 and early 2018?

In 2017 and early 2018, South African consumers performed better than expected despite the overall weak economy and low consumer confidence.

What change occurred in South African consumer spending in the third quarter of 2018?

In the third quarter of 2018, a sharp 1.3% contraction in household consumption spending was recorded, marking the first decline since 2016.

Which categories of consumer spending were most affected by the economic downturn?

Household spending on durables (e.g., white goods) and semi-durables (e.g., clothing) were most affected, as these items are often considered discretionary purchases.

Why did consumers cut back on spending in categories like durables and semi-durables?

Consumers cut back on these categories because they are often non-essential items that can be postponed during times of financial pressure.

What were some of the economic factors that contributed to the decline in consumer spending in 2018?

The decline in consumer spending was influenced by large tax increases in 2018, including a VAT hike, higher fuel levies, and increased personal income taxes.

How much did the tax increases in the 2018 budget impact South African consumers?

The tax increases, including VAT, fuel levies, and personal income taxes, took about 23 billion rand out of consumers' pockets, which equates to roughly half a percent of GDP.

What was the primary objective behind the tax increases in 2018?

The primary objective of the tax increases was to stabilize the South African government's budget deficit and public debt.

What is the outlook for South African consumers in the coming years?

The outlook remains bleak, as the economic headwinds, particularly the tax increases, are expected to persist into 2019 and beyond, with no immediate signs of relief.

How significant was the contraction in household consumption in the third quarter of 2018?

The contraction was significant, with a sharp 1.3% quarter-on-quarter seasonally adjusted annualized decrease, the largest seen since the beginning of 2016.

Why are categories like clothing and white goods considered more vulnerable to spending cuts?

These categories are more vulnerable because they contain items that are often non-essential and can be postponed when households are financially strained.