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Sentiment among shoppers in South Africa has plunged to its lowest point in nearly two years as consumers were shaken by the recent budget proposal to increase the value-added tax (VAT).
The latest FNB/BER Consumer Confidence Index (CCI), released on Tuesday, revealed a steep decline to -20 for the first quarter of 2025, down from -6 in the previous quarter, marking a troubling trend as sentiment has now fallen for two consecutive quarters.
This significant drop, the lowest recorded since the second quarter of 2023, highlighted a grim outlook for consumers grappling with higher taxes and economic uncertainty.
The fieldwork for the first quarter CCI survey commenced only days after the Finance Minister Enoch Godongwana’s (aborted) proposal to hike VAT by two percentage points came to light.
The index’s three sub-indices also reflected this downward spiral, with the economic outlook sub-index nosediving from -9 to -32 index points.
This substantial reversal negates nearly all progress that had been made following improvements in electricity supply and the formation of the Government of National Unity (GNU) in mid-2024.
The household finances sub-index mirrored this decline, falling from 11 to a precarious -1.
Meanwhile, another sub-index measuring the appropriateness of the present time to buy durable goods—such as vehicles, furniture, and appliances—retreated further from -21 to -28.
These declining figures underscore a growing sense of financial strain among South African households as sentiment soured significantly across all income groups.
The confidence levels of high-income households (earning more than R20 000 per month) tanked the most, with their confidence reading plummeting from -4 to -30. The vast majority of high-income households now expect SA’s economic performance and their own household finances to deteriorate over the next 12 months – a complete turnabout from their expectations just three months ago.
The confidence levels of middle-income households (earning between R5 000 and R20 000 per month) and low-income households (earning less than R5 000 per month) declined from -7 index points to -19 and -17 respectively.
The consumer has been the growth engine of the South African economy over the last decade. From 2015 to 2024, real consumer spending surged by an impressive 11.2% cumulatively, while real GDP excluding consumer spending stagnated without any growth.
FNB said the collapse in consumer confidence should be treated as a serious concern for South Africa’s economic prospects, particularly given the sluggish performance of the production and investment sectors.
It said the combination of rising inflation, tight monetary policy and higher real taxes will erode households’ ability to spend, while plunging consumer confidence levels signal a dramatic decline in consumers’ willingness to spend. The fact that the confidence levels of high-income consumers – the group with the greatest spending power, by far – declined the most, only compounds the concern.
While the 14-point fall in the CCI may turn out to be an overreaction, especially since the 2%-point VAT hike has been muted and the latest budget proposal has still not been accepted, FNB said the outlook for consumer spending – and by extension SA GDP growth – has nevertheless deteriorated.
With SA consumers likely to be burdened by high real interest rates and rising taxes, structural economic reforms and other confidence boosting policies are required to spark new growth drivers for the SA economy.
FNB chief economist Mamello Matikinca-Ngwenya said the outlook for household expenditure has deteriorated notably following a surge in retail sales during the festive season.
Matikinca-Ngwenya said the boost from Two-Pot retirement fund withdrawals will be significantly less during 2025 compared to the roughly R40 billion paid out in 2024, while Trump-triggered trade wars and rising global uncertainty are reducing the likelihood of further interest rate cuts.
“The withdrawal of all US aid to SA and the rapid deterioration in diplomatic relations with the US would also have knocked consumer confidence, but the biggest blow to consumer sentiment likely emanated from the National Treasury’s tax proposals and the discord among GNU partners,” she said.
“Although the 2%-point VAT hike option has been shelved, the budget tabled on 12 March still calls for a 1%-point VAT hike over two years and no inflation adjustments to income tax brackets and medical aid tax credits – for the second consecutive year.
“Above-inflation increases to social grants and the expansion of the zero-rated VAT basket should partially shield low-income households, but, if implemented, these tax proposals will deal a significant blow to the financial positions of high-income households.”
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