Retail sales fell for a fourth straight month in March, further signifying the impact of high interest rates, inflation and declining consumer confidence on the economy.
After consumers demonstrated resilience throughout 2022, the cumulative 425 basis point rate hikes by the SA Reserve Bank since November 2021 have begun to bite.
This, together with sharp increases in production and operational costs induced by load-shedding, has started to weigh on corporate margins and consequently employment and wage gains, depressing consumer confidence and household expenditure.
Stats SA data shows retail sales fell 1.6% year on year in March from a 0.7% contraction in the previous month.
The annual drop in retail trade sales was broad based, with six of the seven retail categories falling, highlighting the impact of tighter monetary policy together with the high-cost environment in SA.
Though the out-turn for March was worse than a consensus forecast decline of 0.7% year on year, retail trade sales increased by 0.8% in the first quarter of 2023 — meaning a positive contribution to quarter one GDP is likely.
FNB senior economist Siphamandla Mkhwanazi said though the first quarter retail sales data was better than initially expected, longer-term trends suggest waning consumer resilience.
“While nonlabour income remains resilient, the outlook is less optimistic, mainly due to weaker corporate earnings prospects and their impact on dividend payouts.
“These, combined with elevated inflation and rising debt servicing costs, as well as depressed consumer confidence, suggest a muted household consumption expenditure growth prognosis,” Mkhwanazi said.
Jee-A van der Linde, Africa economist at Oxford Economics, said low level of consumer confidence, which deteriorated by 15 points to -23 in the first quarter of 2023 from an already weak -8 the previous quarter, shows consumers do not expect their finances to improve over the next year and consider the present time as highly inappropriate to purchase durable goods.
“We forecast real disposable income growth will slow to 0.7% in 2023, from 1.9% in 2022, with consumption growth set to moderate to just 0.1% in 2023 compared to 2.6% in 2022,” Van der Linde said. “Moreover, elevated inflation together with a record-weak rand exchange rate is eroding consumers’ purchasing power.”
He added that the weakened growth outlook for the economy suggests that businesses are taking strain and are likely to employ fewer people this year.
The impact of falling real disposable income is also captured in a report released by BankservAfrica on Wednesday that measured take-home pay over a period of five years.
According to the report, the average salary in SA has weakened as a result of the underperforming economy, high unemployment rate, soaring inflation and the effect of the Covid-19 pandemic.
The report shows the average nominal salary, which excludes the effects of inflation that increased to 7.1% in March, increased from R12,573 in February 2018 to R15,438 in February 2023, showing growth of 22.8%.
“In contrast the consumer price index (CPI) increased by 26.6% over the same period, confirming that nominal take-home pay has lagged on developments in inflation,” BankservAfrica’s head of stakeholder engagement Shergeran Naidoo said.
The report shows even though the nominal take-home pay kept up with inflation between 2018 and 2021, the trend took a turn for the worse in 2022.
“Nominal average take-home pay stagnated, falling behind the rising cost of living,” economist Elize Kruger said. “Over the past 18 months, the economic environment has been exceptionally challenging for companies.”
She added that rampant load-shedding, high production costs due to escalating fuel prices, a weaker currency, rising wage pressures, elevated interest rates and moderating demand have all contributed to the dismal growth.
As a result, “companies have indicated a shift from potential expansion and investment to becoming less dependent on Eskom, and have redirected capital earmarked for investment towards self-sufficiency,” she said.
“This conservative survival approach is not conducive to employment growth in SA, and also keeps a lid on salary increases,” she said.
Investec economist Lara Hodes said they do not expect a meaningful improvement in household consumption expenditure, which makes up about two-thirds of GDP, in the short-term.
Update: May 17 2023
This story has been updated with new information and comment.
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