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Cape Town - Real household consumption expenditure growth in 2017 is forecast to amount to 1.7% compared with the estimated growth of 1.2% which will be recorded in 2016, according to research undertaken by Christo Luüs of Ecoquant.
The research was done on behalf of the SA Council of Shopping Centres (SACSC).
Semi-durable goods - mostly clothing and footwear - could experience an increase of only about 1% year-on-year in real terms in 2017, while durable goods expenditure - including furniture, appliances and private vehicles - could rise by around 1.5%. Growth of spend on non-durables is expected to amount to 0.5% year-on-year.
Luüs' research found that cautiously confident positive signs regarding the SA economy have increased hopes of improving trading conditions in 2017.
Among the positive influences listed in his SACSC economic brief are the respite in the violent and destructive student protests, unchanged credit risk ratings by Fitch and Moody’s - although with a negative outlook from the former - and political developments which could lead to an improvement, over time, for the prospects of a reduction in corruption and "state capture" activities.
However, the research report cautions that formidable obstacles to generating sustained high levels of economic growth remain the declining levels of fixed capital formation together with a growing public sector and very little attention to the plight of small businesses. These add up to negative prospects for improved employment conditions.
“The SACSC economic brief highlights the direction the overall economy is taking and how this impacts retail and consumers. It adds to the useful and growing body of knowledge we commission and compile to guide and inform our members,” explained SACSC CEO Amanda Stops.
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The research brief also refers to the latest EY/BER Retail Survey, which shows that conditions in the retail sector improved during the third quarter of 2016 after a sharp deterioration in the second quarter. This survey revealed that a total of 43% of retailers reported being satisfied with prevailing conditions, which was up significantly from 26% in the previous period.
“Improved conditions were most notable in the non-durable goods category, signposting that people seem to be switching spend away from the durable and semi-durable sectors,” said Luüs in the research report.
He pointed out that consumers’ real disposable income remains under pressure, while high food price inflation is causing them to reprioritise spending on essentials. As a result, retail sales volume growth has slowed over recent months.
“Weak underlying consumer demand is flagged by weak job creation, slow disposable income growth, slowing credit extension and low consumer confidence levels," said Luüs.
“As retail sales inflation continue to rise consumers’ purchasing power will be eroded.”
These factors point to real spending growth remaining subdued in the fourth quarter of 2016 and early months of 2017. This also implies difficult trading conditions over the festive season.
“Growth in sales of discretionary items is expected to show further weakness in the early months of 2017, while growth in the sales of essential items is likely to slow. Durable goods consumption may show somewhat stronger growth off a very low base,” said Luüs.
Trade conditions
According to the November 2016 SA Chamber of Commerce and Industry (Sacci) trade survey, trade conditions remained restricted. The seasonally adjusted Trade Activity Index (TAI) remained in negative territory measuring 49 compared to 48 in October 2016.
However, the seasonally adjusted TAI was 6 index points stronger in November 2016 than in November 2015. Sacci pointed out that November usually has an extraordinary seasonal element due to business-to-business trade being concluded before the holiday period of December.
Respondents brought up political leadership, retrenchments, stiffer competition, down-sizing of businesses, the weak economy and shrinking markets as inhibiting factors during this month’s survey.
Gross domestic expenditure volumes (-0.5%) and total export volumes (0%) year-on-year changes, reflected the restricted demand that faces the South African economy.
The slower economic growth by SA’s major trading partners, subdued local economic growth and the local debt squeeze on the public sector and households were seen by respondents as major causes for stale trade conditions.
The employment sub-index declined notably on six-month employment prospects, but decreased only slightly by 1 index point to 48 between October and November. According to Sacci, it appears that less temporary staff than usual will be appointed over the holiday period.
Trade expectations (TEI) remained in positive terrain on 55 index points in November 2016. The seasonally adjusted Trade Expectations Index, however, improved from 57 to 59. Sales and new order expectations both improved in November.
Sacci expects that trade volumes and trade conditions will remain tight over the holiday period although the typical shift in trade will favour retail trade over the festive season.
