South Africa's central bank may be sending warning signals about the high levels of household debt, rising inflation and the widening trade deficit stemming from over-heated consumer demand, but it appears that the country's consumers aren't taking much notice.
Figures compiled by South Africa's First National Bank (FNB) and the Bureau for Economic Research (BER) in their latest Consumer Confidence Index (CCI) showed that faith in the economy remained at near record levels in the second quarter of the year, with the index standing at +21.
Though this represented a fall from the all-time high of +23 for the first quarter of 2007, Cees Bruggemans, the chief economist for the FNB, said the drop was of no major concern.
"Irrepressible engines are keeping households in the money and their confidence levels high," he said in a statement. "Looking forward, continued strong household income growth will support consumer spending."
Only twice before since the CCI was instituted has the index topped +21 - in the first quarters of 2006 and this year. Notably, with the figures for the second quarter of 2007 in, it is the first time the index has remained above this level for two consecutive survey periods.
Most significantly, the survey results showed that among respondents from households with a monthly income below $115, confidence shot up to its highest level in ten years, rising from +15 to +20. Though not as sharp, there was also an increase in the confidence rating among low- to middle-income households, the one-point rise taking sentiment in this bracket to +20 as well.
"These were probably the households benefiting most from new employment opportunities and government spending activity," Bruggemans said.
Though unemployment remains high at 25%, official figures show that 500,000 jobs have been added to the economy for each of the past three years, with Trade and Industry Minister Mandisi Mpahlwa saying on July 4 that the target of cutting unemployment in half by 2014 was "doable".
"The reality is that jobs are being created on a scale that we have not seen in South Africa for a very long time," Mpahlwa said.
It was in the higher-income brackets that confidence slipped, taking the overall index off its record peaks. Among income earners in the $570 and $1140 a month range confidence dropped to +19 from the first quarter's +25, and to +20 from +25 for income groups with monthly earnings above $1140.
It is these groups that have been more affected by sharp rises in petrol prices, which have shot up 19% since the beginning of the year, one of the factors that may have dented confidence levels, according to the survey.
The strong results from the CCI survey only served to back up the outcomes of other recent studies of confidence in the economy. Confidence in the country's retail sector hit record highs in the second quarter of the year, with the BER's Retail Survey showing a rating of 91, up four points and equal to the best ever level achieved in the fourth quarter of 2006.
This confidence was given substance by the 9.5% year-on-year increase in retail sales as of the end of the first three months of 2007, with sales continuing their strong trend into the second quarter.
The BER survey of South Africa's manufacturing business, which came out on June 19, showed a similar resilience, with confidence levels remaining steady at 78 points, as it was in the first quarter.
Even though the results of the joint BER-Rand Merchant Bank survey of business confidence, released in mid-June, showed a one point fall, the Business Confidence Index (BCI) for the second quarter remained strong, at 80 points, near to its nearly two and a half year peak.
"The high level of the BCI in the second quarter would indicate that economic activity remained brisk, expanding at a rate more or less the same as the first quarter," according to a statement issued to accompany the figures.
However, while all of the surveys indicated confidence remains strong across the board, time frames of the studies fell short of the announcement in early June by the central bank of a 50 basis points rise in interest rates. They also did not take into account the release of the April inflation figures, which came out on May 15, which showed an annualised inflation rate of 6.3%, above the 3 to 6% range targeted by the central bank for this year.
Again, according to Bruggemans, while these factors and a tightening of regulations limiting the granting of credit to high-risk clients may dampen confidence, employment gains and the ongoing growth in the South African economy could well offset any negativity.
With the economy tipped to expand by 4.9% this year, on top of the 5% for 2006, and fixed investments at a historic high, there does not appear to be any trick to South African's confidence.