In a research note, the ratings agency said the weakening of the rand against the US dollar, continued electricity shortages over the year and high unemployment will feed into a bleak level of consumer confidence — “with likely spurts of social unrest”.
“With real household spending forecasted to decelerate in line with a wider economic slowdown, consumers will continue to prioritise essentials, with rising food, housing and transport costs weighing heavily on a despondent consumer base,” Fitch said.
Fitch said real household spending was on a downtrend and, with most economies reporting an economic slowdown over 2023, they are beginning to highlight the risk higher unemployment will have on the country's consumer outlook in the short term.
“Compounding this is SA’s high unemployment rate,” Fitch said.
SA’s unemployment remains a key driver of risks to consumer spending, as well as potential social instability, Fitch said.
According to the latest Quarterly Labour Force Survey published by Statistics SA for the third quarter of this year, the national unemployment rate was 32.9%. When using the expanded definition (including discouraged job-seekers), the unemployment rate stood at 43.1%, down from 33.9% and 44.1% respectively.
Such high levels of unemployment will continue to constrain customer spending growth over the medium term, especially when inflation is reducing real purchasing power, Fitch said.
The agency said despite consumer confidence increasing from -25 to -20 in quarter three of this year, the data is the lowest level since the pandemic where consumer confidence fell to -33 in the second quarter of 2020.
“Over 2023, we forecast consumer confidence to remain negative, particularly in the first half of the year, where inflation and interest rates will remain persistently high which will weaken purchasing power and electricity outages compound the pessimistic outlook for the short term.”
The agency said despite forecasts suggesting inflation will slow over 2023, they forecast inflation to end 2022 at 7.0% year on year and remain elevated over the first half of 2023, having a negative impact on already fragile consumer purchasing power.
“With risks such as inflation and elevated transport costs, our operational risk teams expect risks of social unrest and labour disruptions to remain elevated over quarter four and into 2023,” Fitch said.
“The severity of socioeconomic issues such as poverty and unemployment exacerbate social discontent among employees and, as seen by strikes by union workers over the third quarter, have the ability to increase the costs of basic consumer goods such as food and drinks.”
The agency said consumers will also feel the pressure of rising debt servicing costs.
Inflation rates rose sharply over 2022 placing pressure on the SA Reserve Bank to accelerate the volume of rate increases over the year.
In November 2022, the Bank raised interest rates by a further 75 basis points (bps) to bring the policy rate to 7.0%, after starting 2022 at 3.75%.
Fitch said their Country Risk team expects the Bank to hike the repo rate further by 50bps to 7.50% in early 2023, and then hold the rate over the remainder of 2023 as inflation moderates and headwinds to economic growth increase.
“This will result in debt servicing costs rising further for South Africans and providing further headwinds,” Fitch said.
