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Retail data likely to show bigger drop
Consensus forecasts predict that the sector, the economy's third-biggest, shrank 3.3% in the year to August after a 3.9% fall in July. But some analysts believe the Statistics SA data, due on Wednesday 14 October 2009, will show a sharper contraction than in July.
“For the time being ... sales will remain under pressure. We expect a decline of 4% in real retail sales in August compared to a year ago,” Standard Bank said in a research note.
The Reserve Bank has cut interest rates by five percentage points since December, but it takes changes in interest rates up to two years to make themselves fully felt in an economy. Analysts say it is too soon to expect a pickup in consumer spending, which drives an estimated 60% of the economy.
Consumer spending has contracted for four quarters in a row, shrinking 5.8% between April and June this year, its steepest fall in 24 years. Part of the reason is waning disposable income, which has also fallen for four quarters in a row. Its 5.7% dive in the second quarter of this year was its sharpest in 22 years.
This has kept the debt burden on households heavy, despite lower interest rates. Household debt as a percentage of disposable income stood at 76.3% in the second quarter of this year, not far from the record 78.2% seen in the first quarter of last year.
Analysts say that the pace of job losses is easing but not yet over, with official data signalling that 475,000 jobs were cut in the first six months of this year. Business confidence remains weak, and inflation is stubbornly high.
“In view of these developments, we expect that household consumption will gradually recover from the dismal performance of the past 12 months — but the recovery will be muted, and probably lag overall growth,” said Citigroup economist Jean-Francois Mercier.
The pace of contraction in SA's economy slowed to about 3% in the second quarter of this year from 6.4% in the first quarter, and some analysts expect output to have notched up some growth in the third quarter.
But most agree that any significant rebound will not take place until next year. The economy is likely to contract about 2% this year in SA's first recession since 1992 .
Mercier said that the likelihood of continuing increases in public tariffs, especially for electricity, would also keep consumers wary. He is predicting a 4.3% fall in retail sales in the year to August.
Data from the National Credit Regulator show that the number of consumers in good credit standing continued to fall in June.
At the end of the month, their ratio stood at 55.9% of the 17,8 million on record, down 1.7 percentage points from March and 4.5% less compared to June last year.
Between May and July this year, retail sales fell by an average 5.1%, Standard Bank points out.
Retailers in hardware, paint and glass were hardest hit, with sales down 18.2%.
Source: Business Day
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