Reality check: Investec economist Kamilla Kaplan thinks that some positive economic effects will likely be countered by tighter fiscal policy. Picture: FINANCIAL MAIL
Reality check: Investec economist Kamilla Kaplan thinks that some positive economic effects will likely be countered by tighter fiscal policy. Picture: FINANCIAL MAIL

It is going to be another relatively quiet week on the data front, with retail-trade sales likely to dominate the economic news unless Moody’s Investors Service announces its expected ratings action.

Moody’s has SA’s local and foreign currency ratings ranked two notches above speculative (junk) status on Baa2. With the ratings agency having put SA on notice for a possible downgrade by the end of June, the market expectation is for both SA’s local and foreign currency ratings to be cut by one notch any day now.

Fears that a downgrade from Moody’s was imminent caused the rand to weaken last week.

Barring any announcements from Moody’s, retail sales growth on Wednesday will be the major domestic data release of the week.

It will provide a further piece of the puzzle as to what SA can expect from first-quarter GDP growth figures, which are due out on June 6.

Several economists have warned that the country might have experienced the second successive quarter of negative growth, which would mean that the economy tipped into a technical recession.

However, the more positive mining activity figures released last week, along with expectations for a strong bounce in the agriculture industry in 2017, should help the economy to avoid this, according to BNP Paribas Securities economist Jeffrey Schultz.

The outlook for the retail sector is less assured, sales having contracted on an annual basis in the first two months of 2017. With consumer confidence in tatters and household credit extension at record lows and high unemployment figures, economists expect retail sales to continue to slow.

This means that barring an unexpected recovery in the March print, the retail sector will detract from first-quarter GDP growth, said First National Bank senior economist Mamello Matikinca.

She thinks an upside surprise would be most unlikely since Easter, with all its added shopping days, fell in March in 2016. This should provide a high base for the year-on-year comparison with March of 2017, since this year Easter fell in mid-April. Persistent lacklustre credit growth to households, coupled with weak consumer confidence and a waning appetite for consumer durable goods purchases, underpin her forecast.

Wholesale trade sales, which will be released on Thursday, have not fared much better than retail sales, having contracted 8.7% year on year in February. This was the largest fall since January 2010.

Given that the data out thus far reflects SA’s pre-downgrade period, it is likely the weakness in retail and wholesale trade figures will persist into the second quarter of the year.

Although decelerating consumer price index inflation should boost household disposable income, Investec economist Kamilla Kaplan thinks some of the positive effects will likely be countered by tighter fiscal policy.

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