Johannesburg - Retail sales continued to decline in August, falling for the fourth straight month.
According to Stats SA, retail sales fell by a substantial 5.5% y/y in real terms in August after a decline of 4.6% y/y in July.
In the three months to August, sales were down 3.8% y/y in real terms and down 1.7% y/y in the first eight months of the year. In 2007 as a whole, sales grew by an average of 5.1% and by 9.6% in 2006.
"At this stage of the year, I would expect retail sales to decline during 2008 for the year as a whole," said Kevin Lings, economist at Stanlib.
Lings added that under current economic conditions there is no doubt that the consumer is under enormous pressure, especially in terms of monthly cash flow.
"Under current economic circumstances it is not really possible for the consumer to take on additional debt to compensate for the lack of discretionary spending power. This is because of the already high debt levels and the elevated interest rates," he said.
He believes that consumer spending on items such as cars, furniture, household appliances, clothing, homeware, hardware, eating places, entertainment, music, books, investment products, sporting goods and jewellery will be under enormous pressure for the next 12 to 18 months.
"This is also an increased risk of distress borrowing as consumers cling to recent lifestyles or find they have over-indulged over the previous four years.
'To remain under serious threat'
The risk of bad debts has and will continue to rise," he added.
Fanie Joubert, economist at Efficient Group, said a worrying indication from the data is the implicit retail inflation, which has risen from around 10.0% y/y in January to above 17.0% in August. This remains well above the latest CPI figure (August: 13.7%) adding continued pressure to general prices in the economy, from the retail side.
"Despite this pressure, we expect that CPI has reached a turning point and that we should see it easing slightly towards 2009. However, we expect retail sales to remain under serious pressure until interest rate cuts (possibly in the first quarter of 2009) start to provide breathing space and revive some consumer confidence in the economy," Joubert added.
Razia Khan, regional head of research, Africa global research at Standard Chartered Bank in London, added that the deeper contraction in y/y retail sales in August will reinforce expectations of a weak Q3 GDP, which the SARB has already alluded to.
"Growth may not be negative, but with consumption accounting for a large chunk of SA growth, this will not be well received by equities, and will therefore have implications for the rand as well," Khan said.
For the bond market, focus is very clearly on when the SARB might start cutting interest rates.
"The risk we see now is that the easing we had expected in early Q2 09 - most likely at the April meeting - may be brought forward," Khan concluded.
- I-Net Bridge