The 2.3% annual drop in retail sales followed September's 5.6% fall, and was less sharp than expected but reinforced the dismal outlook for the economy's third-biggest sector, which is now in a recession.
Government bonds rallied on the news, backing speculation the Reserve Bank will cut the repo rate at least half a percentage point to 11.5% when its monetary policy committee meeting ends today.
“We think the growth picture has soured quite radically — we are in for quite a rough ride next year,” said Absa Capital economist Ian Marsberg.
“The only thing which will prop up growth next year is government infrastructure spending and consumer demand, which is dwindling. That is why we expect a rate cut of at least 50 basis points.”
Absa Capital has slashed its growth forecast for next year to 1% from 2.5%, and predicts a technical recession for the economy, or two successive quarters of contracting output.
Bank data earlier this week showed consumer spending, which accounts for 60% of gross domestic product (GDP), fell 0.8% in the third quarter, its first contraction in a decade.
That helps explain the steady retreat in retail sales, down 2.3% in the first 10 months of this year compared with the same period last year, when they rose 6.6%.
The outlook for the sector, which accounts for 14% of GDP, remains poor for the coming year with household income eroded by rising inflation, high debt and punitive debt costs.
“Consumer spending is unlikely to improve in the short term,” said Nedbank economist Johannes Khosa. Job security was coming under threat from the global recession, which may put further strain on waning consumer confidence, he said.
Meanwhile, a South African Chamber of Commerce and Industry survey showed its index of trade conditions for retailers and wholesalers had plunged to 38 last month from 46 in October, its lowest since 2000.
The chamber said its trade expectations index — which looks six months ahead — also fell further below the neutral 50 level, subsiding to 43 from 49 in October.
“It now appears that trade conditions still remain desperate and might not have bottomed out yet as previously anticipated,” it said.
Prospects of looming job cuts, dwindling global demand for exports and the likelihood of a sharp fall in inflation next year were seen as likely to back the case for the Bank to cut lending rates today. They climbed by five percentage points in the past two years, and the introduction of tougher credit rules in June last year added to pressure on consumers and companies, shown in rising bankruptcies and liquidations.
It takes changes in interest rates up to two years to make themselves fully felt, so the effect of the latest hikes are still feeding into the economy.
Employment growth is slowing, with thousands of jobs shed in the retail and manufacturing sectors, and 11,000 under threat in mining.
Labour unions urged the Bank to slash interest rates in line with its global counterparts yesterday. Solidarity demanded a one-percentage-point cut while the Food and Allied Workers Union urged the Bank to reduce rates by 1.5 percentage points.
“The reality is that thousands of people are currently losing their jobs due to a lower demand for the products and services provided by their employers,” Solidarity spokesman Jaco Kleynhans said.
While the Bank could not do anything about the global economic crisis, it could do something to “stimulate local demand, limiting further job losses”, Kleynhans said.
In the three months to October, retail sales fell 4.5% compared with the same period last year, Stats SA said. Sales of durable goods such as household furniture, appliances and equipment were hit hardest, falling 6.7% versus the same month last year.
Growth in sales of pharmaceuticals and medical goods slowed to 13.8% from 24.6%.
Source: Business Day
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