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After a poor start to 2022, consumer sentiment finally rises in March

Updated: Sep 14

However, for the moment, we recommend that, in the near term, retailers should be lean in their operations and they should also avoid capital-intensive investments that would require borrowing until the picture of the future of the economy is clearer.

  • KASI’s global CCI grew by 8 points in March after an underwhelming performance in the first 2 months of the year. The heightening of the global CCI can be traced back to the index of current economic conditions and index of future expectations both of which increased by 3 and 8 points respectively.

  • Once again, the performance of household indices was mixed this month. After deteriorating by a shocking 49 points, the country's economic conditions index rebounded by 54 points climbing to 23 from -31. Meanwhile, the city economic conditions index lost its gains of 5 points from February with the index crumbling by 8 points this month. The job prospects index maintained its upward momentum growing by another 10 points while the household income index continued spiraling down as it fell by an additional 3 points in March. After ascending in February, the purchasing power and discretionary spending indices stumbled by 4 and 3 points respectively. Lastly, despite weakness in households’ budgets so far in 2022, there was an improvement this month as the index moved up by 4 points.

  • Turning to the countries tracked by our index, apart from Ghana whose consumer confidence index declined by 6 points, all other countries saw consumer sentiment advance in their countries with South Africa recording the largest expansion of 20 points rising to 4 from -16.

For the first time in 2022, consumer sentiment ticked upwards after two successive months of disintegration as the index progressed by 8 points from 2 to 10. Both the index of current economic conditions and index of future expectations caused this propulsion with the latter advancing by 8 points and the former strengthening by 3 points. In spite of the ongoing Ukraine war and lockdown in China that continue to have far-reaching implications on commodity prices and supply chains, it appears that African households are having a more optimistic outlook on the state of the economy as suggested by the performance of the indices this month. The positive outlook could be explained by a number of factors.

One is the fact that the rate of job creation has picked up to a nine-month high with companies citing efforts to rebuild their capacity and develop new products as highlighted in an article on economic recovery in sub-Saharan Africa by S&P Global Market Intelligence/IHS Markit. The article noted that the region’s Future Output Index which, despite slipping for the second month in a row from January's post-pandemic high, continues to be on an upward trend since the middle of 2020 indicating that sub-Saharan businesses are willing to look past the current slowdown in output and plan for a wider post-pandemic recovery in economic conditions over 2022. This observation could explain the positivity in our job prospects and future expectations indices.

Another possible reason for this optimism is the individual response by governments to shield their citizens against the sharp price increases hence spurring positivity among households on current economic conditions. For example, in Kenya, the government instituted a subsidy program to protect the mwananchi (citizen) from the imminent fuel price shock. In its latest maximum retail fuel price publication for the period 15th April – 14th May 2022, instead of the anticipated KES 40.00 price hike on a liter of petrol, Kenya’s Energy & Petroleum Regulation Authority (EPRA) increased fuel prices on a liter of petrol by KES 9.90 on account of this fuel subsidy program by the Government. Other governments like South Africa and Tanzania have suspended their fuel levies so as to cushion consumers while still leaving the option of fuel-price caps on the table as possible instruments to protect consumers.

Despite continued improvement in job prospects among households, incomes and spending remain subdued.

There was a mixed performance across the household indices for March. Following a drastic decline in the country's economic conditions index which faltered by a staggering 49 points last month, the index experienced a rebound of similar significance as it bounced back by 54 points. This behavior of the overall country economic conditions index can be primarily attributed to Nigeria’s country economic conditions index that sunk by 104 points last month and rose by 100 points this month thereby affecting the performance of the overall index.

Meanwhile, the city economic conditions index tumbled by 8 points erasing its gains of 5 points from February. Following through from the last month, the household income index dwindled yet again falling by an additional 3 points to 25 from 28 while the job prospects index carried on with its positive momentum surging by 10 points thus reflecting the hastened pace of job creation discussed earlier. There were reversals in the trajectory of the remaining indices with the purchasing power and discretionary spending indices receding by 4 and 3 points respectively after rising in February, while the household budget improved by 4 points following a slip of 10 points last month.

Consumer sentiment in South Africa heightens while Ghanaian households report a pessimistic outlook with inflation climbing to its highest level since August 2009

Focusing on consumer sentiment across countries, Cameroon, Ivory Coast, Kenya, Nigeria, South Africa, and Tanzania all witnessed an increase in their consumer confidence index with South Africa undergoing the largest expansion of 20 points moving into positive territory (from -16 to 4) for the first time in 2022. On the contrary, consumer confidence in Ghana waned by 6 points descending to -8 from -2.

The progression of consumer confidence in South Africa is associated with the acceleration of its index of future expectations and index of current economic conditions both of which advanced by 17 and 27 points respectively. Fortunately for South Africa, its fiscal position, according to Moody’s rating agency, “markedly recovered” from the pandemics thanks to high commodity prices, which boosted tax revenues, and the government’s fiscal consolidation measures including its ability to limit the public sector wage bill growth to 1.6%. This has culminated in a change in Moody’s outlook on South Africa’s economy from negative to stable. However, there are still some signs of weakness, especially with state-owned enterprises (SOEs) and ongoing global uncertainties which remain to be a risk for the country. Consequently, South African households have also indicated mixed feelings about their income and the economic situation of the country. At the forefront is the poor performance of the purchasing power, discretionary spending, and household income indices all of which sunk by 6, 2, and 5 points respectively in spite of a boost in their personal financial situation index that surged by 31 points after subsiding by 66 points last month. During March, in an effort to subdue inflation, South Africa’s central bank hiked interest rates by 25 basis points resulting in the prime rate climbing to 7.75% which appears to be having the intended effect with household expenditure quelling as suggested by the indices. Finally, akin to the global indices, its job prospects, and country economic conditions also grew by 56 and 88 points respectively while its index of city economic conditions shrunk by 25 points.

In Ghana, the drop in sentiment among households in both current economic conditions and the future led to sluggishness in its CCI. Its index of future expectations fell by 4 points while that on its current economic conditions decreased by 10 points. Data from Ghana’s Statistical Service shows that, year-on-year inflation hit its highest level since August 2009 rising to 19.4% in March from 15.7% in February. The hike in inflation is linked with the price escalation in food items which, year-on-year, jumped by 22.4%, and also in transport including fuel whose consumer price index (CPI) shot up by 27.6%. As a result, households reported a slump in their income and spending situation with the household spending, discretionary spending, and household income indices withering by 18, 9, and 16 points respectively. Furthermore, unlike the overall index, Ghana’s job prospects diminished as its index plunged by 10 points declining to -46 from -36. However, similar to the overall pattern, its city economic conditions index slackened by 10 points while its country economic conditions index swelled by 22 points.

Reduced expenditure and incomes among households coupled with rising input and transportation costs point to a strenuous time ahead for retailers in the short-term

While it is great to see the renewed optimism among households, there are still concerns as to whether this positivity will be sustained. We have noted that, in a bid to stem inflation arising from higher input and transportation costs, governments all over the world are responding by raising interest rates which will, in turn, result in higher borrowing costs for businesses and consumers alike thereby reducing spending and investment. However, the impact of Covid-19 and the resulting structural changes continue to linger with employment yet to return to full capacity despite the fact that economic activity had picked up pace in 2021. This is a conundrum for policy-makers as they strive to find a balance in managing both rising inflation and an under-utilized labor market.

Given that households have reported reduced incomes and expenditures as reflected in the indices, retailers across all spaces should expect their revenues to fall as households are wary as to how they will allocate their income in the face of rising inflation. The situation is also likely to worsen, particularly for those in the discretionary space, if the cost of inputs and transportation climbs higher. Nevertheless, the improved sentiment among households especially on future expectations and job prospects is one that must be closely monitored in the coming months. However, for the moment, we recommend that, in the near term, retailers should be lean in their operations and they should also avoid capital-intensive investments that would require borrowing until the picture of the future of the economy is clearer.

“Stagflation is described as the situation of both high unemployment, high inflation, and slow or negative economic growth occurring at the same time. The question among experts now is whether we are headed into such a situation. At the moment, it is difficult to ascertain where we are given that interest rates have only recently been hiked and we are yet to see the impact of higher rates on inflation and employment as new data has not been released. With new data in the coming months, we can draw some stronger conclusions on the economic situation” Davies Nyachieng'a, Economist at Kasi Insight

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#Retail #CCI #Fuel #Inflation #Nigeria #Kenya #SouthAfrica #Cameroon #Tanzania #Ghana #Africa #Covid19


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