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April retail sales data disappoints, but consumer spending expected to improve

Jun 13 2018 18:00
Lameez Omarjee

Cape Town – Retailers only managed to eke out 0.5% growth during April, despite expectations of better trading conditions.

Statistics South Africa (StatsSA) on Wednesday released retail sales data for April. For the month, growth contracted 1.2%, compared to the -0.2% decline in March and 1.4% growth in February. According to Bloomberg, the latest data reflects the slowest growth in 15 months.

The markets had forecast growth of 4.1%, according to a report by Nedbank’s Economic Unit economists Johannes Khosa and Dennis Dykes. According to their report, consumer spending accounts for just over 60% of GDP.

Positive growth rates were recorded for retailers in household furniture and equipment up 11%, followed by retailers in pharmaceuticals and medical goods, cosmetics and toiletries up 6.2%. Other retailers reported growth of 5.6% and this was the main contributor to the 0.5% increase.

However, growth was dragged down by general dealers which contracted by 1% and food, beverages and tobacco in specialised stores which contracted by 5.5%.

"Regardless of weak retail sales in April, consumer spending is still expected to improve in the months ahead, supported by low inflation and debt service costs, as well as improving consumer confidence," the report read.

But the economists warned that growth in sales would be contained by higher VAT, now at 15%, and the poor job market. The economy is still expected to recover from a disappointing GDP contraction of 2.2% in the first quarter, Dykes and Khosa highlighted.

Inflation is also expected to deteriorate further given a weaker rand. But Nedbank is of the view that interest rates are expected to remain unchanged for the rest of the year.

Jason Muscat, FNB senior economic analyst, highlighted that consumers may have "front-loaded" their purchases ahead of the VAT hike, which came into effect on April 1.

"We will to wait to see if there is a normalisation in buying patterns in the May print, but evidence seems to be mounting that household consumption may not be holding up as well as we had expected in 2018," he warned.

Investec economist Lara Hodes in turn attributed the lower sales growth in April to the VAT increase.

Despite an improvement in consumer sentiment, households are still facing challenges, she explained in a report. These include improved credit extension to the household sector in recent months, elevated unemployment rates, and the 1% VAT hike and additional consumer and personal income tax increases, she said.

Hodes expect these challenges, along with higher oil prices and rand weakness and fuel price pressure, to weigh down the disposable incomes of consumers.

Investec, however, still expects household consumption expenditure to grow 2.3% in 2018, and possibly lift retail sales growth.

Hodes is also optimistic for an improvement in economic growth for the remainder of the year. "Elevated levels of consumer optimism (in the first quarter), should drive private sector consumption going forward."

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sa economy  |  retail  |  sales
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