Economists are hopeful that continued signs of recovery will be evident from the main economic data releases this week — retail sales for January, and consumer and building confidence surveys for the first quarter of 2022.
The economy has bounced back faster from the July unrest and Covid-19 pandemic than expected. This pushed the annual growth rate to almost 5% last year — a huge turnaround from the record 6.4% year-on-year contraction SA suffered in 2020 at the height of the pandemic.
Recent data points to a continued rebound in activity into 2022, with purchasing managers’ indices painting a rosy picture in January and February. Retail sales data for January due out on Wednesday is expected to support this trend.
Towards the end of 2021, retail activity was buoyed by less restrictive lockdown measures, increased consumer mobility, improved credit uptake, the extension of the special Covid-19 grant, and a relatively strong recovery in disposable income, notes FNB chief economist Mamello Matikinca-Ngwenya.
She expects near-term retail sales to continue to benefit from these factors.
Investec economist Lara Hodes is also bullish, projecting that retail sales increased by a further 5% year on year in January, after December’s 3.1% year-on-year increase, given that conditions have continued to improve.
Indeed, BankservAfrica’s monthly take-home pay index shows that SA’s average salary increased in January 2022 at its fastest rate since before the pandemic. Yet, Hodes notes that retailers continue to face numerous challenges, including electricity shortages and supply bottlenecks.
Higher living costs
Matikinca-Ngwenya is more concerned about the “intensifying headwinds” that could weigh on longer-term shopping activity in the form of higher living costs, depressed sentiment, a stagnant labour market and rising interest rates.
Just how depressed SA consumers are will be clearer on Thursday when the FNB/BER Consumer Confidence Index (CCI) for the first quarter of 2022 will be released
The CCI was relatively flat at -9 index points in the final quarter of last year, after posting -10 in the previous quarter. This put consumer sentiment back at the level logged in the first quarter of 2020 before the pandemic, but it was still well below the long-term average of +2.
At the time, consumers were still reluctant to buy durable goods, with this subindex recording -30 points, though they were slightly more optimistic about the prospects for the economy and their household finances over the next year.
Hodes expects the CCI to have risen moderately, to about -4 index points in the first quarter.
“Lenient lockdown measures have lifted sentiment among consumers, with pent-up demand leading to a buoyant festive period,” she says, “However, many households remain financially constrained.”
Looking ahead, she expects rising administered prices to continue to dilute disposal incomes, with the fuel price expected to climb further on spiralling global oil prices. Moreover, heightened global geopolitical tensions are fuelling uncertainty, which is also weighing on sentiment.
Building confidence
Matikinca-Ngwenya also expects higher living costs, the risk of slower global growth and recent bouts of load-shedding to dampen domestic economic prospects and weigh on confidence and spending.
First-quarter building confidence results will be published on Tuesday.
The FNB/BER Building Confidence Index (BCI) declined slightly to 34 index points in the final quarter of last year from 35 in the previous quarter, reflecting that most players in the sector remain dissatisfied with prevailing business conditions.
The composite index was pulled down by sentiment in the building materials manufacturing sector, which more than halved to 21 from 55 previously, driven by lower domestic production and export demand as well as higher input costs.
Matikinca-Ngwenya says that there was a significant improvement in sentiment in the core building sector that rose to 27 index points from 20 previously — its best level since the second quarter of 2019.
She attributes this to a moderation in tendering competition, suggesting scope for improved profitability among those who did tender. Activity among main building contractors, architects and quantity surveyors also lifted in line with the spurt of rebuilding that followed the July unrest, though this may prove short-lived.
Overall, while activity has improved, a lack of high-value projects and delays in awarding tenders continue to weigh on sentiment.
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