Growth in retail sales in May could steer SA away from recession

Higher than expected growth in the retail sector in May could help SA avoid its second recession in two years.

Retail sales saw surprising growth of 2.2% in May, higher than the 1.7% expected by economists polled by Bloomberg. The sector grew by 2.7% the month before, revised upward from 2.4%.

The 2.2% represents an increase of R89.2bn for the sector in May compared to R85.05bn in May 2018, and higher than the R83.99bn recorded in April.

The retail sector is an important indicator of consumer spending — it drives growth in the economy as it accounts for just more than 60% of GDP.

“The latest retail data, together with the improved trend growth  in manufacturing, as well as a couple of other sectors, should ensure that SA avoids another negative GDP performance in the second quarter, thereby helping SA avoid slipping back into a recession,” Stanlib chief economist Kevin Lings said.

The better-than-expected growth in May is despite consumers coming under pressure in the month with a 54c/l increase in the petrol price, which weighed on disposable income, as well as weak consumer sentiment, according to the tepid consumer confidence index. This was reflected in the subdued month-on-month change in retail production of just 0.1%.

Consumers could receive some relief on Thursday with many analysts expecting the Reserve Bank’s monetary policy committee (MPC) to cut interest rates for the first time since March 2018.

While the pressure on consumers’ discretionary income will keep shopping activity relatively muted this year, “increasing unsecured credit uptake, mainly by higher-income consumers, as well as our expectation of a cut in interest rates in July could provide auxiliary support to retail sales volumes in the coming months”, FNB economist Siphamandla Mkhwanazi said.

Subdued inflation and lower interest rates will provide a boost for the sector but the continued threat of further load-shedding, softer global growth, government’s weak fiscal position and continued policy uncertainty will continue to weigh on consumer confidence and curb discretionary spending, Nedbank economist Johannes Khosa said.

Compared to a year ago, general dealers saw growth of 4%; household furniture, appliances and equipment saw a rise of 2.3%; pharmaceuticals and medical goods, cosmetics and toiletries, grew by 2.9%; and food, beverages and tobacco in specialised stores were up 2.7%.

In the three months ended May 2019, seasonally adjusted retail trade sales increased by 1.1% compared with the previous three months.

Last week, data from Stats SA showed a mixed bag for the second month of the second quarter. While SA’s manufacturing sector grew a marginal 1% year-on-year in May, mining production contracted 1.5% year-on-year in May, extending the sector’s fall to a seventh consecutive month.

In the first quarter of 2019, the economy contracted more than expected after the worst power cuts the country has seen dented both the retail and manufacturing sectors.

Another quarter of negative growth would place SA in a recession.

menons@businesslive.co.za