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Consumer Sentiment Recovers Slightly Despite Worries on Prevailing Economic Conditions.

Updated: Sep 14

“These are unprecedent times in which we find ourselves. There is no end in sight to the headwinds facing the economy from Covid-19, which is resurfacing in certain regions, to the war in Ukraine that is having a devastating impact on the cost of living. Significant structural changes are expected as a result of these crises some of which are already manifesting like those in the labour market. While it is all about surviving these challenges for both consumers and producers, adapting to these changes will be as crucial in order to take advantage of any emanating opportunities.

  • KASI’s global CCI ticked up by a single point in May following a deterioration of 5 points last month. The index of current economic conditions and the index of future expectations moved in opposite directions with the former losing 2 points and the latter gaining a point.

  • Whereas households reported a worsening in the personal financial situation with the index losing 2 points, there was an improvement in household incomes as the associated index rose by 9 points. Expenditure also recovered with the household purchasing power and discretionary spending indices progressing by 2 and 1 point(s) respectively. Unfortunately, the economic situation indices dwindled as the job prospects index receded by 6 points and the general economic conditions index for the both the city and country fell by 2 and 1 point(s) respectively.

  • Consumer confidence heightened in Ghana, Ivory Coast, Kenya, Nigeria and Tanzania with Ghana’s consumer sentiment index recording the largest increase for the month of 6 points. After climbing for the past 3 months, consumer sentiment in Cameroon receded by 6 points erasing majority of its gains accumulated during the period. Finally, akin to last month, South Africa was the worst performer of the month as its consumer confidence index tumbled by 8 points declining to -23 from -15.

Following a slip last month, consumer sentiment had a slight rebound in May as KASI’s global CCI advanced by 1 point rising from 5 to 6. This modest bounce is a result of a divergence in the sub-indices where the index of current economic conditions descended by 2 points while the index of future expectations increased by a single point.

Africa continues to grapple with the effects of recent geo-political events and supply chain vulnerabilities that have led to a sharp increase in the cost of living due to the resulting shortages. Evidently, this continues to have a negative impact on households and their perception of current economic conditions with the respective index once again weakening this month. To make matters worse, there is a growing food shortage in the continent which is being exacerbated by the war in Ukraine as well as climatic shocks including droughts in East Africa and cumulative rainfalls in West Africa. According to reports by the Food and Agriculture Organization (FAO) and the African Union (AU), an estimated 346 million people in Africa are affected by the food crisis.

In addition to the food insecurity, another major challenge facing the continent is a dollar shortage. Both small and large businesses in Africa are struggling to access the hard currency in order to facilitate foreign transactions which are essential in ensuring the continuation of their operations. This situation is also affecting African households as parents are finding it difficult to raise dollars required to pay tuition fees in foreign universities. In response, some African governments are taking drastic measures to address the dollar scarcity. For example, the Central Bank of Kenya directed commercial banks in the country to ration dollar sales to importers, manufacturers and others in need of the currency. The banks obliged and there is now a daily cap of USD 50,000 for most businesses looking to buy dollars at the official exchange rate. Similarly, in Nigeria, commercial banks including GTBank, Zenith Bank and First Bank reduced monthly foreign currency spending which their customers could make using their naira cards from USD 100 to between USD 20 and USD 50.

Nevertheless, there does appear to be some slight optimism among consumers on the future of the economy. Certainly, the move to ease Covid-19 restrictions in China will be beneficial for alleviating some of the supply chain stress that has affected the prices of products. However, considering the fact that Africa is a net-food importer and that majority of foreign transactions are dollar-denominated, it will be vital to pay close attention to the situation of the dollar as further shortages and imposed limits would be harmful to households and businesses.

While households reported a recovery in incomes, perceived weakness in job prospects meant that most of the extra income was saved instead of being spent.

Despite serious weakness in March, there was a recovery in some of the household indices this month. At the forefront is the household income index which, after stumbling by 8 points last month, bounced back by 9 points. Consequently, this boost in household incomes translated into increased expenditure. Although the purchasing power and discretionary spending indices were unable to salvage the losses from last month, both indices managed to improve by 2 and 1 point(s) respectively. Unfortunately, the personal financial situation index continued sliding this month as it declined by another 2 points from 16 to 14 which is an indication that households are still expecting to spend less in the next 6 months compared to the previous 6 months.

Turning to the economic indicators, their performance this month implies that households’ perception on these elements is grim. After 3 months of moving in opposite directions, the general city economic conditions and general country economic conditions indices were finally in tandem this month though their movement was on a negative direction. The city economic conditions index waned by 2 points whereas the country economic conditions index faltered by a single point. Likewise, the job prospects index crumbled by 6 points after flatlining last month. Therefore, this suggests that, while incomes are on the rise, weakening job prospects have resulted in households spending a smaller proportion of their additional income on consumption as the expenditure indices have expanded by a relatively tiny magnitude to that of the household income index.

Ghanaians benefit from the rise in crude oil prices and increased gold production while consumer sentiment in South Africa continues to spiral downwards.

With regards to the countries considered in the index, Cameroon and South Africa experienced a downturn in consumer sentiment as their indices dropped by 6 and 8 points respectively. On the other hand, consumer confidence in Ghana, Ivory Coast, Kenya, Nigeria and Tanzania grew with Ghana’s CCI recording the largest progression of 6 points.

Consumer sentiment in South Africa maintained its downward trend from last month as the index plunged by another 8 points falling to -23 from -15. This follows from a disintegration of both the index of future expectations and index of current economic conditions which collapsed by 7 and 13 points respectively. In addition to the geopolitical crisis that has led to the surge in food and fuel prices, South Africa’s economy is also dealing with the lingering effects of the April floods that had a devastating impact on the country including on energy supply.

With the floods leading to power outages, factory output was adversely affected in April and is yet to recover this month as illustrated by ABSA’s Purchasing Managers Index (PMI). Despite of an uptick in the index this month by 4.1 points (up from 50.7 in April to 54.8 in May), the index is still well below the March levels of 60. Moreover, following actions by the South African Reserve Bank to increase the prime lending rate by 50 basis points to 4.75% which is its highest increase in 6 years, there are fears of stagflation as unemployment is still high. Of particular concern is the possibility of social unrest emanating from this double-edged sword as was experienced in July last year. Because of this, South African households reported a rather pessimistic view of the economy and income situation. With the exception of the discretionary spending and purchasing power indices which had a small improvement of 2 and 3 points respectively after crashing last month, all other household indices sunk further in May. The household income, personal finance and job prospects indices plummeted by 5, 8 and 27 points respectively. In similar fashion, both the general city and country economic conditions indices also slumped by 4 and 21 points respectively.

Once again, Ghana was the best performing country this month with its CCI gaining an additional 6 points climbing from -1 to 5 thus moving into positive territory. The index of current economic conditions and index of future expectations also heightened with the former advancing by 4 points and the latter strengthening by 7 points. Ghana’s economy is enjoying some bright spots in spite of current challenges in the global arena. Luckily, the surge in fuel prices has benefited Ghana’s trade balance which, according to data from the Bank of Ghana, currently stands at a surplus of USD 1.3 billion. Additionally, to cope with the fluctuation in food prices, Ghana’s Ministry of Food and Agriculture has proposed a bill to set up the Grains Development Authority (GDA) who, as part of their mandate, will be to ensure stability in food prices. In as much as the country’s growth projections have been revised downwards from 5.8% to 5.3% by the African Development Bank (AfDB), they are still above the sub-Saharan average of 3.7%. Households are certainly appreciating these positive reports on the country as illustrated by the indices. Other than the city economic conditions index which slipped by 7 points, the rest of the indices ascended in April. The job prospects index elevated by 8 points while the country economic conditions moved up by a point. Households’ financial situation further progressed as the both the household income and personal finance indices soared by 15 and 14 points respectively. Consequently, the purchasing power rocketed by 12 points while the discretionary spending index rose by 1 point.

With quelled household expenditure among other prevailing challenges, monitoring of product turnover is critical for retailers particularly in the discretionary goods space.

Clearly, households are eliciting mixed perceptions on the state of economy which is not favourable for decision-making. While the data shows that incomes did recover this month, the fragility in job prospects as well as general economic conditions in both city and country meant that the marginal propensity to consume the extra income was much lower and consumers instead preferred to save as the overall spending indices did not expand to a similar magnitude to that of the income index.

Therefore, despite a slight return to household spending, we still expect subdued sales for retailers as suggested by the data. However, it is worth noting that context matters because in some countries like Ghana, spending is higher among households while in South Africa it is much lower. Nevertheless, what is definitive is that discretionary spending remains suppressed across the board. As such, it is critical for retailers in the discretionary goods space to proactively manage their operations particularly in light of ongoing challenges. Given the cost of sourcing these goods as a considerable proportion of them are imported, the dollar shortage and elevated transportation costs will certainly have an impact on the retailers in this space. Ergo, it will be important to monitor the demand for the products to avoid a situation of overstocking as this could leave the retailer cash-strapped as funds would be tied up in payments for the goods. On the other hand, understocking could result in dissatisfied consumers. So, taking into account existing challenges as well as delays in shipments, monitoring of product turnover is essential for all retailers especially those dealing with discretionary products.

“These are unprecedent times in which we find ourselves. There is no end in sight to the headwinds facing the economy from Covid-19, which is resurfacing in certain regions, to the war in Ukraine that is having a devastating impact on the cost of living. Significant structural changes are expected as a result of these crises some of which are already manifesting like those in the labour market. While it is all about surviving these challenges for both consumers and producers, adapting to these changes will be as crucial in order to take advantage of any emanating opportunities.

Contact our team today to explore how our economic intelligence can empower your decision-making process. Win with confidence with Kasi insights

#CCI #Economy #Covid19 #Nigeria #Cameroon #Kenya #SouthAfrica #IvoryCoast #Ghana #Tanzania #Russia #Ukraine #Africa #Kasiinsight


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