Retail sector could lift economy out of recession
The retail sector trumped economists’ expectations and experienced a boost in August that could help the economy emerge out of the recession.
Retail trade sales increased 2.5% year on year in August (R86.7bn) following a 1.3% lift in July (R82.2bn). A Bloomberg survey of economists expected a 0.1% contraction.
The retail sector is an important indicator of consumer spending that accounts for about 60% of GDP and drives growth in the economy. The sector has been knocked hard in recent months by a weaker rand and higher oil price that has cut into disposable income.
The growth figures in the sector so far in the third quarter are in stark contrast to the weak performance in the second quarter of the year that contributed to SA’s descent into a recession for the first time since the global financial crisis.
Barring a shock in September, the sector should make a modest contribution to third-quarter growth.
“If [growth is] sustained, it will bode well for the overall economy lifting out of recession in the third quarter,” said NKC economist Elize Kruger.
This is crucial for President Cyril Ramaphosa’s economic stimulus plan to revive growth that was announced end-September and the promise at the jobs summit earlier in October to create an additional 275,000 jobs a year.
However, consumers will still face considerable headwinds and “retail sales figures are likely to remain erratic and generally subdued in the short term” particularly as unemployment remains uncomfortably close to the 30% mark, Nedbank economist Johannes Khosa said.
“Notwithstanding the modest lift in retail sales for August, demand remains lacklustre,” Investec economist Lara Hodes said.
Hefty increases in fuel prices including a looming increase in November, the increase in VAT from 14% to 15% and higher inflation “will likely constrain the average household in coming months”, Kruger said.
While inflation is not expected to breach the 6% upper limit of the target band, it is expected to increase in the coming months, Khosa said. This could necessitate an interest rate hike, which would burden the consumer even further.
The Automobile Association (AA) warned on Tuesday that South Africans should expect another substantial petrol price increase in November.
Petrol prices are set for a 40c increase‚ while diesel and illuminating paraffin could spike by 70c and 65c respectively‚ the AA estimates. This comes while South Africans are still feeling the pinch of a record fuel price increase in October.