South African Consumer Sentiment Declines as Unemployment and Taxes Increase

During the third quarter, there was a noticeable drop in consumer confidence in South Africa, as middle-income families grappled with financial difficulties stemming from higher personal income taxes and the waning benefits of early pension fund withdrawals.

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

The National Treasury’s budget unveiled in May did not take inflation into account when adjusting personal income tax brackets, resulting in increased revenue due to what is commonly referred to as bracket creep.

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“With sluggish job creation, rising inflation, and decreasing two-pot funds, the confidence levels of the middle class have likely been affected,” noted 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 penalties.

Several companies, including Ford, Glencore Plc, and ArcelorMittal SA, have recently revealed plans to cut thousands of jobs in South Africa. Solidarity, a labor union, has warned that these layoffs could impact up to 250,000 workers and has called on President Cyril Ramaphosa to convene a crisis meeting with all stakeholders to avert further job losses.

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Matikinca-Ngwenya warned that the drop in consumer confidence could lead to a major slowdown in the growth of real household expenditure as the year comes to a close.

“Without any additional interest rate cuts and improvements in job creation, escalating food inflation will considerably diminish the purchasing power of especially middle- and low-income consumers,” she stated.

Household consumption expenditure constitutes roughly two-thirds of South Africa’s economic activity.

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