Good times are here again

Another interest rate cut, slowing inflation, rising retail sales, cheaper petrol and electricity sockets that work all day boost consumer confidence and economic prospects.

People believe things are going much better in SA than a year ago. Remember the dark days in November 2023, when everybody was literally sitting in a dark room for a few hours every day – probably stressing about high fuel prices, expensive food and a currency that made a holiday unaffordable?

National elections were only a few months away and every newspaper only reported crime and corruption, and published stories about worsening personal finances.

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Read: Consumer confidence improves to a five-year high

A few small improvements have changed things for the better and the overwhelmingly negative sentiment quickly reversed, and there is a statistic to prove it.

The FNB/BER Consumer Confidence Index for SA, published every quarter by FNB and Stellenbosch University’s Bureau for Economic Research, jumped from a negative 15 points a year ago to negative five points in the third quarter of 2024. It was at a record-low negative 25 points in June 2023.

“Although the latest reading remains slightly below the long-term average of the index, which has been at zero since 1994, it marks the highest level of confidence since the first half of 2019”, says FNB chief economist Mamello Matikinca-Ngwenya.

“A confluence of positive developments has bolstered the confidence levels of SA’s more affluent consumers over the last six months. Besides the slowdown in inflation and the expected interest rate cut in September, factors such as the formation of a national unity government, the absence of load shedding, a stronger rand and significant fuel price reductions have all played a role in boosting consumer confidence.

Read: No load shedding until 2029 – key report

“Moreover, the implementation of the two-pot retirement system allows consumers access to a portion of their retirement savings,” Matikinca-Ngwenya says, hinting that a bit of extra cash is what most people needed to be happier.

More money

The pressure on barely-better salaries has eased compared to a year ago.

The ‘average’ household should have R1 000 to R2 000 more every month than in November 2023 thanks to lower petrol prices and interest rates.

The interest calculation is based on the average home loan of around R1.5 million and the average car loan of R350 000. A household will also have other debt, like a (smaller) loan on a second car, bike or boat, and a few credit cards.

An estimate of R2 million in interest-bearing debt for a household is not unheard of. The two interest rate cuts, totalling 50 basis points, reduced the monthly interest rate charge for this household by around R833.

Sanisha Packirisamy, chief economist at Momentum Investments Group, says the latest interest rate cut of 25 basis points will reduce the repayments on a R2.6 million mortgage by a touch less than R447 per month.

She estimates that the average car loan is R400 000 and that the monthly repayment drops by R50 for every quarter of a percent cut in interest rates.

Read: Just a 25bp cut by Sarb MPC repo rate misfire

People criticised the South African Reserve Bank (Sarb) for making just a small cut, but Packirisamy explains the banks’s caution: “The Sarb provided scenarios that could result in inflation deviating from the forecasts (baseline).

“The upside risks were based on higher administered prices and a more challenging external environment characterised by a weaker rand and higher oil prices. The downside risk considered geopolitical tensions easing,” she says, indicating that the latter would support the rand.

Fuel

Fuel prices are currently around R3 per litre lower than in November 2023.

This has reduced the monthly fuel bill for a motorist by some R570 per month, based on the industry average of travelling 30 000km per annum in a car that uses 10 litres of fuel per 100km.

The last few price surveys and inflation calculations by Statistics SA also had good news, despite the fact that the decrease in inflation to the lowest level in years is largely due to the very high prices a year ago.

But prices are no longer increasing as rapidly as they were during the past two years, and the cost of a few essential products has decreased.

The rand has also improved, even if only by a bit.

A year ago the exchange rate was at R18.70 to the dollar and people expected it to get worse.

It did get worse, and it looked like the rand would break the R20-to-the-dollar mark – but the rand strengthened to the current R18.04, even as the dollar strengthened after the US election.

Read: Rand reclaims some lost ground

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Big picture

Sentiment also improved following the elections in SA and the formation of a multi-party representative government. That the uncertainties of the election are behind us gave the stock market a boost, with the JSE All Share index recovering from around 76 000 points to 86 000.

More good news is that analysts and fund managers expect some steady growth going forward.

The big picture is looking better. While the lower interest rates and fuel prices only add a few hundred rand to a person’s wallet, the aggregate effect is huge.

According to the Sarb’s quarterly bulletin, total debt in SA exceeds R1 859 billion.

The 50-basis-points cut in interest rates will inject nearly R9.4 billion into the economy every year, or R775 million per month.

More interest rate cuts are expected next year, with forecasts that rates will decrease by another 100 basis points. This will pump another R18.6 billion into the economy.

Read: Cagey Sarb to cut rates sparingly in 2025

The R3 per litre saving in petrol on the 23 million litres we use in SA every year adds up to another R6.25 million a month that can be spent on pizza and beer.

Add to this the billions injected into the economy due to the new two-pot retirement system.

Read:
Sars says two-pot withdrawals are over R35bn (not R49.5bn)
Two-pot admin fees could top R1.25bn in first 6 months

Productivity in SA has also improved as Eskom (eventually) started to sort out its problems, and households were able to cut back on spending money on backup systems.

More figures

The effect of the improved cash flow can be seen in the first signs of recovery in retail sales.

Stats SA reports that retail sales increased by 2% in September compared to August. In September 2023, retail sales were stagnant.

Listen/read: Retail roulette: Navigating the highs and lows of SA’s shopping giants

The statisticians also point out that the September figures were gathered before the withdrawal of pension money was in full swing thanks to two-pot.

Another report shows that house prices have increased by around 3.2% compared to a year ago, but the overall figure hid that the value of houses increased by more than double that in some parts of the country.

Listen/read:
Residential property investor interest wanes
Bad times for residential developer Balwin Properties
Now’s the time to get into the property market

On Monday, Stats SA reported in its monthly statistics of civil debt matters that court cases involving people who cannot pay their debt decreased by 15% in September 2024 compared to the previous month – and is 12% lower than a year ago.

The biggest problem remaining is probably the high unemployment rate, but even that improved. The Quarterly Labour Force Survey showed a slight decrease in the unemployment rate as 294 000 people found employment in the third quarter.

In short, nearly 300 000 more people are now able to earn money for themselves and their families.

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