In the first nine months of the year, retail sales contracted 2,1%, after clocking up growth of 7,1% in the same period last year, data from Statistics SA showed yesterday.
“At this stage of the year it is clear that retail sales will decline for 2008 as a whole,” said Stanlib economist Kevin Lings. Soaring debt costs and high inflation would continue to erode disposable income of South African households, putting spending on nonessential goods “under enormous pressure for the next 12 to 18 months”, he said.
Meanwhile, an independent survey warned local retailers yesterday to expect lower than usual festive season demand as embattled consumers try to keep within strained budgets.
“This year will mark a significant change ... retailers can expect lower spending than in recent years,” said Rodger George, Consumer Business Industry Leader for Deloitte SA.
Deloitte's year-end holiday survey showed that most South Africans plan to control their spending over the period — with 64% saying they would stick to a budget, nearly double from 34% last year. “That tells me consumers are really counting the pennies,” George said.
At the same time 57% of South Africans expect the economy to deteriorate next year, leaving them with less purchasing power. That compares with 38% at the same time last year.
Last year, SA's consumers were the most optimistic among 20 countries surveyed by Deloitte in Europe, the Middle East and Africa, with plans to spend 12% more at year-end holidays. But the mood in SA is now in step with the global economy, which is facing its worst downturn since the 1930s depression.
Some of the world's biggest economies — Europe, the UK and the US — are sliding into a recession. Figures from China yesterday showed that its sales of retail goods deteriorated in October, adding to worries that emerging market giants will also succumb to the financial crisis.
SA's economy is still expected to grow this year and next, albeit at a slower pace than the average 5% seen in the past four years.
“The dramatic decline in retail sales points to the fact that the economy is faced with limping consumer demand,” said Doret Els, an economist at Efficient Research.
She said this sluggishness would curb economic growth to 3% this year from 5,1% last year, moderating to nearly 2% next year. Retail sales accounts for 14% of gross domestic product.
There has been ample evidence that a five percentage point rise in lending rates since June 2006 has curbed consumer spending, which is the economy's main growth engine.
Yesterday's data is likely to back the case for the Reserve Bank to keep the repo rate at 12% for the rest of this year, and to start cutting it next year when inflation is set to subside.
“We expect the first interest rate cut in April 2009,” said Investec economist Kgotso Radira. He expected “further contraction in real retail sales growth” over the short to medium term as debt servicing costs, tougher credit rules and inflation curbed consumer demand.
Debt servicing costs climbed to 11,6% of disposable income in the second quarter this year, the highest level since 1999.
Household debt has started to decline for the first time in five years, but no real relief for local consumers is likely until interest rates start to fall.
And there is mounting concern that the rand's latest bout of weakness may delay rate cuts next year by pushing up the cost of imports, keeping inflation elevated.
The rand slid 1,2% to R10,55/ yesterday, taking its depreciation against the resurgent greenback so far this year to about 34%.
Nedbank said that the global environment and lower oil prices would help mute price pressures.
“Increasingly the risk to interest rates appears to be on the downside — rates could come down sooner than expected,” it said in a research note.
Yesterday's data showed that in nominal terms spending on durable goods — furniture, appliances and other household equipment — fell 8% in September versus that of the same month last year. Sales of semidurable goods, such as textiles, clothing and footwear, slowed to 5,6% from 17%% in August.
Those figures are not seasonally adjusted, and do not account for inflation, running at 13% in September, down from 13,6% in August, and slowing for the first time in more than a year.
A radical overhaul of consumer price data which takes effect at the start of next year is expected to help lower the inflation rate by two to three percentage points.
This would help pave the way for several interest rate cuts next year, putting SA in step with the monetary policy trend in many other countries that were hit harder by the global crisis.
The results of a South African Chamber of Commerce and Industry trade survey released yesterday added to the gloom, showing its index was little changed at 46 last month, versus 45 in September.
The trade index — which measures the mood in the wholesale as well as retail sector — has been below 50 since last December, indicating a downturn.
Source: Business Day
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