Retail revival is still some way off

These are the main figures to be released this week, and they are due out on Wednesday.

Retail figures are expected to be still in negative territory, although the most recent statistics point to a marginal recovery.

The First National Bank/Bureau for Economic Research consumer confidence index released last week indicated a measure of recovery in the third quarter, rising five index points to -1.

Economists expect that to lead to marginal recovery in the retail figures expected this week.

Retail-sector performance has been affected negatively with the economy slowed by rising inflation, interest rate increases, high levels of household debt and a declining consumer index.

The South African consumer has been hit by the repo rate rising by five percentage points since June 2006 and the rising inflation rate, factors that have eroded spending power.

However, some economists feel that interest rates have peaked — with the prime lending rate now at 15.5% — and inflation is expected to drop next year.

The Reserve Bank's monetary policy committee decided last week to keep the repo rate at 12%. This is the second time running the committee has left the rate unchanged, having kept it at the same level in August.

Retail sales are expected to remain weak before stabilising.

Standard Bank economist Johan Botha says this is because the full effect of interest rate increases this year is still working its way through the economy, and many households are under financial duress because of high debt levels, punitive financing costs and higher inflation.

According to Statistics SA, retail sales fell 4.6% in July, month on month, and nominal retail sales growth was down 11.4% year on year.

"This performance is a reflection of a recession in retail demand as a protracted contraction in sales growth," Botha says.

Jean Mercier, economist at Citigroup, says real retail sales growth probably remained well in negative territory in August, and he predicts that it will be down 3.1%.

Botha says he is pencilling in a contraction in real sales of 2.8% year on year.

Retail is the third-biggest sector in the country, and contributes 14% to gross domestic product.

Botha says the outlook for retail sales depends crucially on fundamentals such as real income, interest rates and debt levels. These fundamentals will have to improve before a sustainable increase in retail sales.

"The current expectation is that an improvement in these indicators may only occur in the tail-end of next year," Botha says.

Mercier says building-approval statistics in the three months to August probably continue to highlight the weakness in residential investment and a more mixed picture in the nonresidential sector.

He expects a 19.5% drop year on year in residential plans passed compared with the 30.5% drop in the previous month.

Residential investment is likely to slow further in coming months, and the non-residential sector to experience a more moderate year-on-year decline.

Source: Business Day

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