Source: Supplied. Mamello Matikinca-Ngwenya, FNB Chief Economist.

Although the final March Budget softened the VAT hike, the lingering threat of increased personal income tax and other fiscal pressures have left consumers wary. As businesses navigate this volatile landscape, understanding the broader economic impact of shifting consumer confidence is more critical than ever.

The souring of diplomatic relations between South Africa and the US, along with the corrosive knock-on effects of the trade wars triggered by US President Donald Trump, likely also contributed to the extraordinary deterioration in sentiment.

The 14-point plunge in the CCI during 2025Q1 is on par with the dramatic drop in consumer confidence when SA entered stage 6 load shedding for the first time in 2023Q1. This time around there was also a brief return of stage 6 load shedding, which could have contributed to the downtick in sentiment.

The first quarter reading of -20 is also the lowest CCI reading since the first half of 2023 and signals an alarming deterioration in the outlook for consumer spending following the strong end to 2024.

Breakdown of CCI declines

All three sub-indices of the CCI declined notably during the first quarter. The economic outlook sub-index of the CCI plunged from -9 to -32 index points, reversing nearly all gains made from the improvement in electricity supply and the establishment of the GNU in mid-2024. The household finances sub-index of the CCI slumped from 11 to -1, while the sub-index measuring the appropriateness of the present time to buy durable goods such as vehicles, furniture, household appliances and electronic goods, retreated from -21 to -28.

A breakdown of the CCI per household income group shows that sentiment soured significantly across all income groups. The confidence levels of high-income households (earning more than R20,000 per month) tanked the most, with their confidence reading plummeting from -4 to -30.

The vast majority of high-income households now expect SA’s economic performance and their own household finances to deteriorate over the next twelve months – a complete turnabout from their expectations just three months ago. The confidence levels of middle-income households (earning between R5,000 and R20,000 per month) and low-income households (earning less than R5,000 per month) declined from -7 index points to -19 and -17 respectively.

Following a surge in retail sales during the festive season, the outlook for household expenditure has deteriorated notably. FNB Chief Economist Mamello Matikinca-Ngwenya said, “The boost from two-pot retirement fund withdrawals will be significantly less during 2025 compared to the roughly R40bn paid out in 2024, while Trump-triggered trade wars and rising global uncertainty are reducing the likelihood of further interest rate cuts.

"The withdrawal of all US aid to SA and the rapid deterioration in diplomatic relations with the US would also have knocked consumer confidence, but the biggest blow to consumer sentiment likely emanated from the National Treasury’s tax proposals and the discord among GNU partners.

"Although the 2%-point VAT hike option has been shelved, the budget tabled on 12 March still calls for a 1%-point VAT hike over two years and no inflation adjustments to income tax brackets and medical aid tax credits - for the second consecutive year.

"Above-inflation increases to social grants and the expansion of the zero-rated VAT basket should partially shield low-income households, but, if implemented, these tax proposals will deal a significant blow to the financial positions of high-income households.”

Key takeaways and economic concerns

Bolstered by low inflation, interest-rate cuts and generous two-pot retirement withdrawals, real consumer spending grew by a sturdy 2.3% y-o-y in the fourth quarter of 2024, more than double SA’s 2024Q4 real GDP growth rate of 0.9% y-o-y. Results from the BER’s trade surveys suggest that the consumer-linked sectors continued to fare well during 2025Q1, but the sharp fall in the FNB/BER CCI points to tougher times ahead.

The consumer has been the growth engine of the South African economy over the last decade. While real consumer spending grew by 11.2% cumulatively between 2015 and 2024, real GDP excluding consumer spending showed no growth over this period.

Given the stark underperformance of the production and investment sides of the SA economy, the collapse in consumer confidence and deterioration in the outlook for household consumption expenditure should set alarm bells ringing in terms of SA’s economic prospects.

The combination of rising inflation, tight monetary policy and higher real taxes will erode households’ ability to spend, while plunging consumer confidence levels signal a dramatic decline in consumers’ willingness to spend. The fact that confidence levels among high-income consumers—the group with by far the greatest spending power—declined the most only compounds the concern.

While the 14-point fall in the CCI may turn out to be an overreaction, especially since the 2%-point VAT hike has been muted and the latest budget proposal has still not been accepted, the outlook for consumer spending - and by extension SA GDP growth - has nevertheless deteriorated. With SA consumers likely to be burdened by high real interest rates and rising taxes, structural economic reforms and other confidence boosting policies are required to spark new growth drivers for the SA economy.