Retail boost in the second quarter will help GDP rebound

A boost from the retail sector in June will likely help SA escape its second recession in two years.

Retail sales saw growth of 2.4% in June, higher than the 2.2% expected by economists polled by Bloomberg. The sector grew by 2.2% in May.

The June 2.4% represents an increase of R86.15bn compared to R82.09bn in June 2018. However, it was lower than the R89.21bn recorded in May.

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.

Compared to a year ago, all “other” retailers saw growth of 5.7%; retailers in household furniture, appliances and equipment saw a rise of 5.2%; and retailers in textiles, clothing, footwear and leather goods were up 4.8%.

“Retail sales growth is expected to remain positive during the reminder of the year, supported by attractive prices and slightly lower interest rates,” Nedbank economist Johannes Khosa said.

Investec economist Lara Hodes said: “While retailers do expect conditions to improve modestly in the third quarter, consumers’ constrained position continues to hinder any meaningful acceleration in retail sales and overall consumer spending.”

Consumer spending will be curbed by a rise in administered prices; higher fuel prices; as well as a deteriorating job market and diminishing wage prospects; and low confidence levels which will knock households for the remainder of the year, NKC economist Elize Kruger said.

For the second quarter, retail trade sales increased by 2.4% compared with the same period last year and by 4.3% compared to the quarter before which bodes well for overall economic growth for the three months to end-June.

“June retail sales figures add to the evidence that the economy returned to growth in the second quarter of the year but the recovery was soft,” Capital Economics economist John Ashbourne said.

Last week, Stats SA figures were a mixed bag, showing contraction in the mining and manufacturing sectors in June, but overall growth in both sectors in the second quarter. Mining grew a marginal 0.6% for the quarter while manufacturing production rebounded with growth of 3.5%.

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 technical recession.

“The strength of the economy is, to some extent, the result of the flattering comparison with a terrible first quarter,” Ashbourne said.

Despite the expected rebound in the economy in the second quarter, the outlook for the year remains grim. SA is expected to grow less than 1% in 2019, which is too low to make a dent on an unemployment rate that is nearing 30%. Lower growth forecasts will also weigh on the fiscus, increasing the risk that SA will lose its remaining investment-grade rating from Moody’s Investors Service, which is scheduled to make its next ratings announcement in November.

The Reserve Bank expects growth of only 0.6% this year —  far below the National Treasury projection of 1.5%, which is likely to be revised down substantially in the medium-term budget policy statement in October.

Correction: August 14 2019

An earlier version of this article incorrectly mentioned the retail-sales growth was for May 2019 instead of June 2019. This has been corrected.

menons@businesslive.co.za