ECONOMIC WEEK AHEAD: Risk rises of another quarterly economic contraction
Retail sales will indicate trajectory of economy
Retail sales data isn’t usually gripping stuff, but with the economy rapidly losing momentum economists will be hanging on every word of the retail release this week for a clearer indication as to whether overall growth contracted during the third quarter.
Stats SA will release the August retail sales data on Wednesday. Most economists are expecting the data to have softened after a recent Bureau for Economic Research (BER) survey that shows confidence among retailers has dried up, along with sales volumes.
Investec forecasts retail sales growth to have slowed to 1.4% year on year in August from 2.0% in July and is not expecting a significant improvement over the final quarter, despite it being the festive shopping season.
“The propensity for households to spend has been curtailed by insufficient job creation and slower labour income growth,” says Investec economist Kamilla Kaplan.
“Though low inflation and the lower interest rate should provide some relief to households, fiscal policy is likely to remain restrictive, weighing on consumers’ ability to spend.”
Recent economic data has raised a “very real risk” that the economy contracted again in the third quarter, says Capital Economics’ senior emerging markets economist John Ashbourne.
“Even if growth remains positive, the recovery seen in the second quarter has clearly faded.”
Real GDP growth plummeted by 3.2% in the first quarter of the year as load-shedding and strikes took a heavy toll on the economy. This was SA’s steepest quarterly contraction since the global financial crisis.
Economic activity rebounded in the second quarter to 3.1%, against a consensus expectation of 2.5%. But economists warned that the recovery wouldn’t last since much of it was due to statistical base effects and the stabilisation of electricity supply.
Recent activity data all suggest that the economy is slowing on a quarterly basis.
In September SA’s Manufacturing Purchasing Managers’ Index (PMI) tumbled from 45.7 to 41.6 index points, the worst result in a decade.
SA’s electricity output also plummeted to a new decade low in August, reflecting the extremely weak demand conditions in the economy.
The manufacturing and mining production data for August released last week showed a slight pickup on a monthly basis but continued to decline in year-on-year terms. Both sectors look set to perform worse than in the second quarter.
Ashbourne estimates that if August retail sales growth remains in line with its recent average the economy probably contracted over the three months to August.
Absa economist Peter Worthington agrees that given SA’s “very weak growth momentum” there is a risk of it posting another quarter of negative growth.
He is expecting third-quarter GDP to scrape in with growth of 0.3% against a consensus expectation of 1.3%. However, his forecast assumes a rebound in the volatile agriculture sector, after sharp contractions in the first half of the year.
The Reuters consensus, which has dropped steadily in recent months, is that the economy will grow by 0.6% in 2019. It grew by 0.4% in 2016, 1.4% in 2017 and 0.8% in 2018.