Strong retail could raise 2011 GDP

South African retail trade sales at constant (2008) prices for December recorded an 8.7% growth year on year (y/y) after a revised 7.2% (6.8%) y/y growth in November, figures released on Wednesday by Statistics SA (Stats SA) showed.

This brought growth for 2011 to 6.1% compared with 5.1% in 2010 when sales were boosted by foreign fans for the 2010 FIFA Soccer World Cup.

Growth in SA's retail trade sales at constant (2008) prices for December was expected to ring in at 6.7% y/y, according to a survey of leading economists by I-Net Bridge.

In the February 2011 Budget, Treasury expected real household consumption expenditure (HCE), which feeds off retail sales growth, to slow to 4.2% in 2011 from an estimated 4.6% in 2010. In October 2011 the Treasury changed its forecast to 4.3% from a new estimate of 4.4% for 2010.

One of the problems Treasury may have is that they publish their estimate of GDP growth a week before Stats SA does. This has been a problem since the 1999 "temporary" shift of the Budget speech to February from the traditional March date.

Stats SA and the South African Reserve Bank (SARB) do their annual benchmark revisions to GDP data at the end of the year, so the revised estimate for HCE for 2010 is now 3.7%.

In the first three quarters of 2011, the SARB estimated that real household consumption expenditure grew by 5.2% y/y, while over the same period real retail sales increased by 5.3% y/y. This in turn resulted in real GDP growth of 4.3% y/y if measured from the expenditure side, which is how most economists, including Treasury, forecast GDP data.

In the fourth quarter 2011, real retail sales growth accelerated to 7.9% y/y, so if the previous relationship holds (HCE 0.1 percentage point less than retail and GDP 0.9 percentage points less), then real HCE should expand by around 7.8% y/y and GDP by around 7.0% y/y.

In February 2011 Treasury forecast 2011 GDP growth at 3.4% and then lowered it to 3.1% in October. It looks as if they may have to raise it again in February 2012 to match the actual evidence in the fourth quarter 2011, which was far better than expected in October 2011.