Retail sales shrank for a sixth consecutive month in May, suggesting SA consumers are having a tough time contending with the high-price environment, compounded by weak economic activity and high unemployment.
This is seen in the retail sales figures released by Stats SA on Wednesday that show retail trade contracted 1.4% from a year earlier, after an upwardly revised 1.8% fall the previous month.
The outcome is worse than the Reuters consensus expectation of a 1.1% contraction.
While the retail trade sector contributed positively to GDP in the first quarter, this is unlikely to be the case in the second quarter. Stats SA data shows that on a three-month to three-month basis, volume sales are down 0.7%, giving an early indication that the retail industry is likely to detract from second-quarter GDP growth.
The weak performance was relatively broad-based, with five out of seven categories recording a decline in annual volumes.
Stats SA data shows the largest contractions were recorded among general dealers, hardware material and household furniture and equipment retailers.
A stronger performance by clothing and footwear retailers persisted, with 10.3% year-on-year growth in volumes, contributing 1.8 percentage points.
Africa economist at Oxford Economics Jee-A van der Linde said the effect of tighter monetary policy is clearly showing, with consumer confidence now at the second-lowest level on record.
He said the firm forecasts real disposable income growth will slow to 0.5% in 2023, from 1.5% in 2022, with consumption growth set to moderate to just 0.5% in 2023 compared with 2.5% in 2022.
“We do not see any meaningful improvement for the domestic economy in the near term as structural constraints with a high-cost environment weigh on growth prospects,” Van der Linde said. “We expect an economic contraction in quarter two and forecast real GDP to grow 0.2% in 2023.”
FNB senior economist Siphamandla Mkhwanazi said that despite credit data suggesting consumers are still accumulating consumption credit at a relatively faster pace — though the trend has plateaued in the past few months — FNB expects lending standards to tighten further as the cumulative effect of past interest rate decisions filters through, suggesting less support for shopping activity.
“Furthermore, salary growth expectations have also moderated, in contrast to inflation and interest rate expectations. These factors, combined with depressed consumer confidence, corroborate our view of subdued growth in household consumption expenditure,” Mkhwanazi said.
Investec’s Lara Hodes said the bank expects the electricity supply situation to continue to weigh heavily on costs, reducing profitability, while consumers remain financially constrained dealing with elevated living costs and high interest rates.
“In the short term we don’t anticipate a meaningful pickup in household consumption expenditure, which makes up about two thirds of GDP. Growth for this year is projected at just 0.2%,” Hodes said.
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