SA retail sales surprised in December, growing faster than market expectations and further strengthening the case against a technical recession. But economists warn the sector is still expected to detract from overall GDP in the fourth quarter due to muted consumer spending.
While retail sales numbers published by Stats SA on Wednesday were positive, growing 2.7% from a year earlier in December after an upwardly revised 1% decrease in the prior month and better-than-market forecasts of a 0.7% fall, the outcome follows two consecutive months of declines.
While retail volumes rose 1.4% in December month on month, the most since January 2022 — after an upwardly revised 1.1% increase in the previous month — trade sales contracted in the three months to end-December.
Sales contracted 0.4% quarter on quarter in the fourth quarter, dragged lower by a 1.5% drop in textiles, clothing, footwear and leather goods — implying that the retail industry will detract from GDP growth in the fourth quarter.
“The latest numbers align with the trend of choppy economic data we have seen throughout 2023, indicative of an economy simply lurching along,” Oxford Economics senior economist Jee-A van der Linde said.
Investec economist Lara Hodes said that despite December’s positive result, overall consumers remained largely constrained, grappling with lacklustre real incomes.
“Average real take-home pay declined 4.7% year on year in 2023 ... and persistent economic challenges have hampered companies’ ability to pay inflation-related salary increases over the past 18-24 months,” Hodes said.
A closer look at the data shows three out of seven categories recorded an expansion in annual volumes.
The clothing and footwear category rebounded to 7% year on year, contributing 1.6 percentage points to the headline number. It was supported by the general dealers category, which saw volumes increase 3.5% year on year, contributing 1.5 percentage points, while the household furniture sales category recorded a 3.2% increase, contributing 0.1 of a percentage point.
What dragged volumes in December were the hardware material category and the other retailers category, recording declines of 2.8% year on year and 2.4%, respectively, and each detracting 0.2 percentage points.
The pharmaceuticals category declined by 1.9% year on year, detracting 0.1 percentage point from the headline number.
FNB senior economist Siphamandla Mkhwanazi said shopping activity declined 1% in 2023 compared with 2022, reflecting a subdued consumer demand environment.
“We expect this to persist in the near term, driven by sticky inflation, high interest rates and depressed consumer confidence,” Mkhwanazi said. “Furthermore, the prevailing tight lending standards and high debt service cost environment should keep credit growth relatively contained, both in the bank and nonbank sectors, and thus provide less support to consumption. That said, the medium- to longer-term outlook is slightly brighter.”
SA household consumption has been on a downward trajectory, falling in the second and third quarters of 2023 as a result of the cumulative rise in interest rates. The Reserve Bank increased rates by 475 basis points between November 2021 and May 2023, taking its benchmark repo rate to 8.25%.
Headline inflation continued on its downward trajectory in December because of a sharp moderation in food and fuel inflation. It reached its lowest reading in four months at 5.1% in December — from 5.5% in November — but is still well above the Bank’s preferred 4.5%.
Inflation averaged 6% in 2023, above the Bank’s forecast of 5.8%.
Consumers and retailers also faced weak finances, subdued credit growth, low disposable incomes and fragile confidence.
Wholesale sales collapsed in October, reflecting lower consumer spending, while new vehicle sales contracted for the fifth consecutive month in December.
The consumer confidence index, a measure of how optimistic or pessimistic consumers are about the future economic situation and their own financial prospects, slipped to minus 17 index points in the fourth quarter, a survey by the Bureau for Economic Research (BER) in partnership with FNB showed on Thursday.
This is the lowest festive season consumer confidence reading in more than two decades.
The Wednesday reading puts the country’s state of consumer spending in focus. Consumption spending accounts for about 60% of GDP.
Hodes said Investec expected consumption expenditure, which makes up a significant two-thirds of growth projected, to be a moderate 1.6% year on year in 2024, with expected interest rate cuts providing some relief to the indebted.
Van der Linde said Oxford Economics expected that SA’s economy would avoid a recession in the fourth quarter, with real GDP forecast to grow 0.1% quarter on quarter, after quarterly manufacturing production hardly increased in the quarter. Mining output rising above expectations.
“We forecast real GDP growth to pick up only modestly to reach 0.7% this year,” he said. “Supply-side constraints will continue to undermine growth in the first half of the year amid ongoing load-shedding and port congestion, with the peak affect of tighter monetary policy also likely to still constrain household spending during the first half of 2024.”
He expected the Bank to start cutting rates in the third quarter of 2023, with the repo rate at 7.75% by the end of the year.
Update: February 14 2024
This article has been updated throughout.
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