South Africa Economic Outlook - March 2023

What South African consumers are seeing on their horizon

Johannesburg, 30 March 2023 — PwC South Africa is pleased to share its third South Africa Economic Outlook report for 2023. 

This edition focuses on the consumer and their financial outlook. It features insights from PwC’s newly released Global Consumer Insights Survey (GCIS) Pulse 5 report that highlight the challenges currently being faced by local consumers. We look at specific results around the impact of supply chain disruptions on consumer shopping behaviour, concern about personal financial situations, and the willingness to pay extra for a product with positive Environmental, Social and Governance (ESG) attributes. 

Our survey shows that supply chain disruptions have affected South African consumers most significantly by increasing the prices of household goods, longer queues in-store, items being out of stock, and reduced product range available. Seven out of 10 respondents to our consumer survey indicated that they were frequently or almost always impacted during the three-month survey period by higher in-store prices. Unsurprisingly, shoppers are cutting back on buying: Seven out of 10 South African respondents said they have stopped or are delaying non-essential spending.

From a macroeconomic perspective, while employment increased significantly last year, the outlook for job creation this year is a lot more conservative due to multiple economic headwinds. We expect the South African economy to add only 100,000 jobs this year. At the same time, the buying power of salaried workers is declining quickly due to lower take-home pay as well as elevated inflation. 

Lullu Krugel, PwC South Africa Chief Economist, says:

“Given the weak outlook for job growth in 2023-2024, the rising cost of living, elevated interest rates, and the decline in buying power over the past year, it is not unexpected that South African consumers are downbeat about their personal financial outlook. Results from our survey show that three out of four South African respondents are either very or extremely concerned with their personal financial situation. The dire financial outlook once again heightens our concern about rising social risk.”

On a positive note, headline inflation is on a declining trend towards the central bank target range, while interest rates are peaking with an expected final 0.25 percentage point increase in March. Our baseline expectations ahead of the second Monetary Policy Committee (MPC) meeting of the year is that the tightening cycle will be over after this week.

In light of the disappointing GDP data released for 2022Q4, which brought the full-year economic growth rate of 2.0% in 2022 notably below the South African Reserve Bank (SARB) forecast of 2.5%, it is highly unlikely that the central bank would have appetite for additional rate hikes this year beyond the March decision.

Christie Viljoen, PwC South Africa Senior Economist, says: 

“We see room for the repo rate to start declining late this year as inflation moderates towards the midpoint of the SARB’s 3%-6% target range. The key factor here is the speed at which inflation is able to moderate. There have been many media reports over the past month about consumer goods companies (including food producers) warning of more supply chain price pressure that will need to be passed on to consumers this year.”

For now, with interest rates at the highest since the 2008-2009 global financial crisis, rising debt service obligations are an added burden for consumers. We expect debt cost as a percentage of disposable income to increase from 7.2% last year to 9.1% in 2023. This will further impact the ability of consumers to repay their loans. From a banking perspective, the collapse of two US-based banks during March raised concerns globally about the stability of banking systems that are already dealing with consumers struggling to repay debt. However, our newly released Major Banks Analysis found that higher earnings and optimised capital demand have helped keep local banks’ capital ratios well above the levels required by regulations. 

Key content in this report includes:

• Employment: Better-than-expected jobs data for 2022Q4, but weak 2023 forecasts due to ‘GDP-shedding’.
• Supply chains: Continued disruption causing higher retail prices and out-of-stock frustrations.
• Cost of living: Consumer price inflation keeps slowing down and will soon re-enter the target range.
• Monetary policy: Interest rates are peaking and could start coming down before year-end.
• Personal financial outlook: Big decline in consumer buying power raises social risks further.
• ESG focus: Consumers are willing to pay a higher-than-average price for a product that promotes ESG considerations.