The outlook for South African household consumption is looking somewhat less promising and monetary easing could come back onto the agenda later this year in an effort to support growth‚ says Shilan Shah‚ Africa economist at UK-based Capital Economics.
“We have pencilled in a 50 basis point cut in the second half of this year‚ which would bring the repo rate to a new record low of 4.50%‚” he said.
Shah said the November retail sales data released by Statistics SA showed that sales by general dealers‚ which have the biggest weight in the sample‚ contracted for the first time since January 2010.
“There is also evidence that the retail sector has benefited from the recent acceleration in private sector credit growth. Indeed‚ credit to the private sector expanded by 9.6% year on year (y/y) in November last year‚ the quickest pace of growth since February 2009‚” he noted.
In Shah’s view‚ growth of retail sales was likely to be subdued over the course of 2013.
“For one thing‚ inflation has accelerated in the past few months‚ to 5.6% y/y in November from 4.9% y/y in August. We think this is likely to accelerate further in the near term‚ as the lagged effect of last year’s spike in global food prices and weakness in the rand continue to feed through. This in turn will weigh on real incomes and erode some of the benefits of higher wage settlements.”
“In addition‚ heightened fears over job security created by the recent announcements of potential job cuts from a number of mining companies‚ including Anglo American and Harmony Gold‚ are likely to weigh on consumer confidence. The BER’s Consumer Confidence Index shows that confidence deteriorated in the final quarter of 2012 amid the mining strikes. Another weak survey in the first quarter this year would point to a further slowdown in overall household consumption.”
“Sluggish retail sales would be quite worrying for South Africa’s overall economic outlook‚ given that the strength of household consumption has helped to offset weakness in net exports and investment in the past few quarters. The latest GDP data for the third quarter 2012 show that household consumption grew by 3.4% y/y‚ compared to overall growth of 2.3% y/y.”
“In terms of what this means for policy‚ the stronger than expected retail data support our view that the South African Reserve Bank will opt to keep its benchmark repo rate on hold at 5.00% at its next meeting‚ scheduled for nest week. But with the outlook for household consumption looking somewhat less promising‚ we still think that monetary easing could come back onto the agenda later this year in an effort to support growth‚” he concluded. - I-Net Bridge