South African Consumer Confidence Declines Due to Increasing Unemployment and Taxes

During the third quarter, consumer confidence in South Africa experienced a downturn as middle-income households grappled with financial pressures from rising personal income taxes and the waning impacts of early pension fund withdrawals.

FirstRand’s First National Bank announced that its quarterly consumer sentiment index fell to -13 as of September, a decline from -10 in the previous quarter, according to a statement released via email on Thursday.

The National Treasury’s budget in May neglected to adjust personal income tax brackets for inflation, which has led to increased revenue through what is referred to as bracket creep.

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“Factors such as slow job creation, rising inflation, and dwindling two-pot funds are likely starting to affect the confidence levels of the middle class,” stated FNB Chief Economist Mamello Matikinca-Ngwenya. The two-pot system, introduced last year, allows savers to access a portion of their retirement funds early without incurring penalties.

Companies including Ford, Glencore Plc, and ArcelorMittal SA have recently declared plans to cut thousands of jobs across South Africa. Solidarity, a labor union, has warned that these layoffs could affect up to 250,000 jobs, urging President Cyril Ramaphosa to convene a crisis meeting with all involved parties to avert further job losses.

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Matikinca-Ngwenya warned that the drop in consumer confidence is likely to trigger a marked slowdown in real household expenditure growth as the year comes to an end.

“In the absence of further interest rate cuts and a rebound in job creation, escalating food inflation will severely diminish the purchasing power of especially middle- and low-income consumers,” she noted.

Household consumption expenditure accounts for approximately two-thirds of South Africa’s economic activity.

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