Retail sales figures this week will shed light on whether the economy's third-biggest sector will slide into recession this year, as a slowdown in consumer spending gathers momentum.
Rising interest rates, soaring inflation and waning growth in disposable income have all conspired to take a mounting toll on household demand.
Retail sales contracted for two months in a row in November and December last year, which technically puts the key sector into a recession.
Sales edged up by a meagre 0,2% in January this year, but analysts expect the figures for February, due out on Wednesday, to show another decline.
That will not bode well for the rest of the year, as last week's interest rate hike will put more pressure on the sector, which accounts for 14% of the economy.
“Retailers are experiencing tough trading conditions,” Standard Bank said in a research note last week.
Higher interest rates, tougher credit standards and surging food and fuel prices were crippling the purchasing power of business and consumers, it said.
Electricity cuts, triggered by power utility Eskom's inability to meet rising demand, were adding to the list of retail woes.
“It is clear that retailers will face a tough few quarters before conditions improve, and this is likely to happen only in 2010,” said Standard Bank.
Citigroup economist Jean Francois Mercier expects retail sales to have fallen 0,5% in February, based on figures from an industry body, the Retailers' Liaison Committee.
“In view of the squeeze on real incomes from higher inflation and interest rate hikes, this would not be a surprise to us,” he said.
Growth in retail sales has steadily slowed since the middle of 2006 — when the Reserve Bank began raising rates to quash growing price pressures.
Since then, interest rates have climbed by a cumulative 4,5 percentage points, taking prime lending rates set by commercial banks to 15% — a near five-year peak.
Official data shows the knee jerk response. Retail sales growth subsided from 6,1% in the second quarter of 2006 to 2,1% in the final quarter of last year. That was the slowest pace in six years, according to Statistics SA, which includes wholesale trade along with hotels and restaurants in that sector.
Sales of new vehicles and durable goods have been hardest hit. Growth in durable goods spending retracted sharply last year, taking the increase for the period down to 5,2% from a blistering 15,9% in 2006. New vehicle sales plunged 5,2% last year — the first annual decline since 2002.
So far this year sales for the industry have extended their fall, plunging by an annual rate of 17,5% in February.
There are signs the malaise is spreading. A Bureau for Economic Research (BER) survey shows retail confidence hit a five-year low in the first quarter.
Now, the BER is predicting the sector will grow by just 2% 3% this year, after expanding by about 7% last year. Those forecasts are backed by data from the Bank.
Investec economist Annabel Bishop says Wednesday's figures are likely to have less effect on markets than usual, given the Bank has just raised interest rates. However, they will feed into the equation when the Bank's monetary policy committee next meets in mid-June.
Other data due on Wednesday will show whether building plans passed in February indicate more weakness in residential construction.
“We expect that on average in December-February, residential plans passed fell 10,9% year on year, having been in negative territory since 2007,” Mercier said.
Source: Business Day
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