Retail slowdown signals third-quarter economic contraction
The continued slowdown in retail sales growth, on the heels of negative industrial numbers and a deteriorating global outlook, suggests SA’s economy could contract in the third quarter of the year.
Retail sales growth continued to slow in August, reaching 1.1% year on year, down from 2% in the previous month, Stats SA said on Wednesday.
The figure was below market expectations of 1.7% and is the lowest reading in 2019 since March. The slower pace of retail growth comes on the back of a range of other lacklustre data — notably that of mining and manufacturing, which both contracted during August. On Wednesday, SA was also hit by fresh Eskom power cuts, which are expected to weigh on sentiment, economists said.
“Today’s figures really don’t bode well for quarter-three growth, especially if you view it in the context of the poor mining and manufacturing output,” said FNB economist Siphamandla Mkhwanazi. He said if there is a contraction in the third quarter, it will unlikely be at the level seen in the first quarter of the year, when intense load-shedding contributed to the economy shrinking by 3.1%.
Even if SA achieved a positive reading for the third quarter, and subsequently the full year, it would be “nowhere close to where we need to be”, Mkhwanazi said.
Retail Futurist Doug Stephens spoke to Business Day TV about the trends observed in the retail sector and initiatives aimed at 're-engineering' the industry.
Not as bad as mining or manufacturing
Though the retail sector’s August performance was not as bad as mining or manufacturing, “there is still a growing risk the economy contracted over quarter three as a whole”, said John Ashbourne, senior emerging markets economist at Capital Economics.
Sanisha Packirisamy, an economist at Momentum Investments, said she still expects that third-quarter growth may just make it through at 0.5%, and full-year growth at 0.6%. But the renewed load-shedding poses a risk to this outlook, she said, and heightens the urgency for a “concrete” plan on Eskom’s future to be announced at the upcoming medium-term budget policy statement.
At the end of October, finance minister Tito Mboweni is expected to outline the full effect of low economic growth, poor tax revenues and increased spending to support Eskom will have on the government’s finances.
SA’s local economic challenges come as the global outlook also sours. The International Monetary Fund (IMF) downgraded its expectations for world growth to the lowest levels since the last global financial crisis, due to rising trade barriers and increased geopolitical tension.
In the update of its World Economic Outlook released on Tuesday, it said it expects global growth to reach 3% for 2019, down 0.3 percentage points from its April forecast. The IMF forecasts that SA’s economy will grow 0.7% in 2019 and 1.1% in 2020. The forecast is unchanged from the IMF’s July update, but is down on its April forecast by 0.5 percentage points for 2019 and 0.4 percentage points for 2020.
SA needs “gradual but meaningful and growth-friendly” fiscal consolidation to stabilise public debt, including measures to reduce the public wage bill, downsizing and eliminating wasteful spending by public entities, expanding the tax base, and strengthening tax administration, the IMF said.