South African Consumer Mood Falls on End of Welfare Program

South African consumer confidence declined in the second quarter after the government ended increased social welfare payments and temporary relief measures for workers who lost their income because of the coronavirus pandemic.

A quarterly index measuring sentiment fell to -13 in the three months through June from -9 in the previous quarter, FirstRand Ltd.’s First National Bank said in an emailed statement Monday. The index has now erased gains that saw it return to pre-pandemic levels earlier this year and remains below the average consumer-confidence reading of 2 since 1994.

The decline is largely due to an “alarming turnabout” in sentiment among low-income households, with the mood among the least-affluent consumer group that earns less than 2,500 rand ($175) per month falling from zero to -22, while confidence among higher-income categories deteriorated only marginally, FNB said. Household consumption expenditure accounts for about 60% of gross domestic product.

South African Consumer Mood Falls on End of Welfare Program

While a third wave of coronavirus infections, rising food and fuel prices and a weak recovery in low-income jobs that were lost last year are likely to have weighed on the index, the expiration of virus-related temporary welfare measures “arguably dealt the largest blow to the spending power and confidence levels of low-income consumers,” said FNB Chief Economist Mamello Matikinca-Ngwenya.

“In the absence of further expansionary welfare spending by the government, the prospects for low-income consumers and non-durable goods retailers are very much tied to job creation, which has been the Achilles heel of the South African economy,” she said. Almost a third of the country’s workforce is unemployed, latest data from Statistics South Africa show.

Restrictions including an extended curfew, alcohol ban, outlawing of sit-down meals at restaurants announced Sunday by President Cyril Ramaphosa could further weigh on consumer confidence and the recovery of an economy that contracted the most in a century in 2020.

READ: SOUTH AFRICA INSIGHT: Commodity Gains Offset Virus Risks

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