SA 'easing out of recession'

Johannesburg - Retail sales figures released by Statistics South Africa on Monday provided more evidence the country was easing out of a recession, economists polled by Reuters said.

"Retail sales for July are much better than expected and this number points to the economy exiting recession during the third quarter," said Peter Attard Montalto, emerging markets economist at Nomura.

The figures supported Nomura's above consensus gross domestic product (GDP) forecast for 2009 "based on a faster bounce back in the economy", said Montalto. Retail sales fell 3.9% year-on-year in July at constant prices, compared to a revised 6.9% contraction in June, Statistics South Africa said on Monday.

Retail sales growth has cooled sharply over the past year after a number of years of strong growth that helped lift expansion in the overall economy to around 5%.

Retail sales are expected to stay under pressure in 2009 due to job losses and a recession, despite the 500 basis point cut by the SA Reserve Bank (Sarb) since December.

"This data point will be important for Sarb given their concentration on consumption," Montalto.

"Key is that whilst South Africa's recession is indeed lagging the rest of the world it is not going to necessarily be of greater length than similar emerging markets," said Montalto.

"It seems like the pace of the deterioration in retail sales has improved somewhat. One can expect the lower interest rates to filter through and improve consumers' ability to spend - although consumers are still under pressure," said Salomi Odendaal, an economist at Citadel. "Wage increases, specifically in the private sector, have been mostly below inflation."

The Reserve Bank started a two-day meeting on Monday to decide the next move on rates, and analysts polled by Reuters expect the key repo rate to stay on hold at 7.0% on inflation worries.

- Reuters