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Economic improvements and euphoria to boost consumer confidence in 2010
Economist Danelee van Dyk forecasts economic improvements that will underpin consumer confidence for 2010
While the euphoria around the FIFA 2010 World Cup is set to boost local consumer confidence, an improved economic landscape is expected to ease some tension, with the general economic outlook indicating a recovery in new credit demand, better job prospects, lower inflation levels, and an estimated rise in interest rates of 1.5 percentage points during 2010.
More specifically, lower inflation levels of between 5% and 6% are envisaged for 2010 giving consumers the benefit of improved purchasing power, following a period of double-digit increases in prices, food and other consumer goods and services over the past few years. Lower inflation will be underpinned by the rand’s significant 20% to 30% gain in 2009 and lowering prices of imported goods and retailers will lure shoppers back into shopping malls with attractive sales’ offerings following a prolonged period of suppressed sales volumes.
Admittedly, given the sharp credit boom that proceeded the recession, household spending will be predominantly cash-based. We anticipate a broadly conservative consumer stance in 2010 with individuals more inclined to build their precautionary savings balances following increased financial vulnerability to save and reduce debt before participating in credit-financed spending. We will also see some upward pressure on interest rates. Currently, around 1.5 percentage points increase in the prime lending rate is seen as probable.
Employment prospects will not be as bleak. Although corporates will not hire as aggressively, the global and local economic prognosis should improve. Corporates will slowly start ramping up capacity, and working hours and overtime payments should start to normalise again. As a result, job insecurity is expected to recede somewhat.
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