September retail sales take centre stage this week and the outcome, which concludes the sector’s readings for the quarter, will give us a clearer idea of the trade sector’s likely contribution to the third quarter headline GDP number.
Credit ratings agencies Moody’s and S&P are scheduled to give an assessment of SA’s credit rating on Friday. Fitch could also do so this month, but has not disclosed a ratings review date.
Retail sales’ growth slowed to 2.0% in August, below market forecasts of a 4.2% rise and after an upwardly revised 8.9% jump in July, reflecting the low base created by lockdown restrictions and social unrest in July 2021.
The August outcome is in line with the third-quarter RMB/BER consumer confidence index, which also showed consumer sentiment remained downbeat, signalling a substantial moderation in real consumer spending growth compared with robust growth at the beginning of the year.
The high inflation rate of 7.5% and slowing economic growth, which contracted to 0.7% quarter on quarter in the second quarter, weighed on disposable incomes, while rising interest rates and the weak job market kept consumer confidence low.
Investec chief economist Annabel Bishop said fourth-quarter outlook for household finances worsened with CPI inflation expected to remain elevated.
“Interest rates have nearly doubled in the current cycle with a further large 100 basis point hike projected later in the month as inflation remains notably above the high point of the Reserve Bank’s inflationary targeting band, primarily driven by elevated energy and food prices,” said Bishop.
As a result, Investec expects retail sales to have contracted 0.8% year on year in September.
Investec economist Lara Hodes said the contraction is also due to heightened load-shedding, which may have weighed on retailers’ ability to operate optimally while weighing heavily on consumer confidence.
Nedbank senior economist Isaac Matshego said they expect retail sales growth to remain lacklustre for the rest of 2022 and in early 2023.
“We expect households to be cautious of spending, especially on discretionary goods. Retail sales will draw support from the end-of-year discounting, but volumes are unlikely to be significantly higher than over the same period in 2021,” said Matshego.
Moody’s and S&P will give an assessment of SA’s credit rating on Friday.
Moody’s and Fitch have SA on stable outlooks, while S&P moved SA to a positive outlook in May.
In a note, Bishop said SA’s credit ratings are not expected to be upgraded this year, despite S&P’s positive outlook and a “credible stabilisation of debt projections” in the medium-term budget policy statement.
“The ratings agencies are likely to adopt a wait-and-see approach, and potentially not deliver credit rating upgrades this year,” said Bishop. “S&P’s positive outlook may be mirrored by Fitch, but the credit ratings agencies are likely to wait for the outcome of the ANC elective conference.”
Bishop said influential international commenters, including the IMF and Moody’s, have shown scepticism on fiscal plans set out in the medium-term budget with valid concern about the tendency of the public service “wage bill to come out above budget each year”.
She said the ratings agencies are concerned about state-owned entities’ needs for financial bailouts, “another large expenditure item with insufficient electricity production”. She said these are a concern because they limit economic growth and fiscal revenue generation.
“These factors are not expected to improve over the short-term, while Transnet’s diminishing capacity on its rail and ports has limiting factors for economic growth and so revenue collection, in turn damaging for public finances, and so limiting credit rating uplift potential,” said Bishop.
“The deterioration of economic activity on the back of worsening fundamentals for economic growth, particularly Transnet and Eskom’s capacity to meet the needs of a growing economy, remains a pertinent risk for SA.”
Other possible reasons for a downgrade include weakened GDP growth projections of a 0.9% average over five years, a swing to left-leaning policies, depressed business confidence, little investment growth, a short recession and SA’s potential greylisting for an indefinite period.
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