Business confidence fades and April retail sales in shock crash
Annual sales growth comes in at 89% lower than economists expected
SA received a reality check on Wednesday as business confidence plummeted in the second quarter and the retail sector took a knock on the back of VAT and fuel increases.
While the VAT increase hit consumers hard, the Reserve Bank’s more hawkish tone at the recent monetary policy committee meeting in May suggested that the rate cutting cycle may have come to an end as inflation began to edge upwards.
Consumers’ purses have also been stretched by the steep increase in the fuel price.
Low inflation and debt service costs coupled with a surge in consumer confidence would provide a much-needed boost for the retail sector, said Nedbank economist Johannes Khosa. This would be contained until there was a meaningful reduction in unemployment.
Consumer spending accounts for just more than 60% of GDP and the economy is still reeling from a weak first quarter. At the same time, some of the shine around President Cyril Ramaphosa’s election has begun to wear off as business confidence plummets. After surging from 34 to 45 in the first quarter, the RMB/BER business confidence index deteriorated to 39 in the second quarter of 2018.
RMB chief economist Ettienne le Roux said the plunge in business confidence was a disappointing outcome but an accurate reflection of reality.
In the first quarter, the huge leap in confidence was attributed to the euphoria surrounding Ramaphosa’s election and the swift political change. However, confidence has not filtered through to the real economy yet, as seen by the week economic performance in the first quarter.
“Ramaphoria faded in the wake of the ever-rising petrol price, the political debate around ‘expropriation of land without compensation’ intensifying, and growing signs that the strong synchronised global economic upswing has started to fizzle out,” Le Roux said.
He said it was important that the political and policy factors weighing down on confidence were resolved — a message the IMF pushed on Wednesday as it called for more certainty around the Mining Charter and land.
“Removing policy and regulatory uncertainty, combined with forceful implementation of an ambitious reform agenda would further strengthen confidence, attract private investment durably and support job creation,” the IMF said.
After the euphoria of the first few months of 2018, the last few weeks had cast a shadow over the economy, said head of economic research at Old Mutual Investment Group Johann Els. “Perhaps Ramaphoria has been blown out of proportion as the real economic impact of SA’s new leadership will take some time to reflect in the numbers.”
Despite the grim outlook, Els said that he expected a recovery in consumer spending and economic growth.
While the figures seem bleak, Els said that consumers were in a better position than they were a year ago.
Stanlib chief economist Kevin Lings said: “Looking ahead to the next 12 months, some of the factors that supported retail activity in 2017 are likely to dissipate somewhat.”