Outlook remains fragile in retail

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FoodRetail1 Independent Newspapers. Picture: David Ritchie.

While retail trade data for December surprised the market with a 3.5 percent annual increase in sales compared with the expected 2.7 percent rise, economists warned that the economic outlook remained fragile.

Yesterday’s data from Statistics SA showed a slowdown from 4.4 percent year-on-year growth recorded in November, which mirrored recent trading updates from major retailers.

Increasing demands on consumers’ discretionary income are expected to put retailers in a tight spot this year. Trading updates from stores including Shoprite, Massmart and Truworths were subdued for the six months to December.

For last year as a whole, sales growth decelerated to 2.8 percent from 4.6 percent in 2012.

Factors such as high consumer indebtedness, a continued weakening of the rand, tighter criteria for unsecured loans, spiralling food prices and higher fuel costs will further squeeze retailers.

The retail trade data show that on a seasonally adjusted month-on-month basis, sales growth inched lower to 1.4 percent in December from 1.5 percent in November.

Retail trade sales increased by 3.1 percent year on year in the fourth quarter of last year.

The fastest annual growth in December was recorded for retailers in hardware, paints and glass, followed by retailers in textile, clothing, footwear and leather goods.

The chief economist at economists.co.za, Mike Schussler, said that although the 3.5 percent increase was higher than expected, it indicated only that many South Africans probably spent holiday time at home instead of travelling.

He warned that consumers should expect another petrol increase in April and retailers should expect much weaker sales going forward.

“We are not in recession but we are surely not having a spurt in economic growth. We seem to be in stagnation.”

The Nedbank Economic Unit agreed, saying subdued consumer spending was expected to prevail in 2014 as a poor economic outlook weighed on consumer confidence.

The BankservAfrica economic transaction index, also released yesterday, showed that monthly transactions started the year with a decline, but grew 1.3 percent year on year.

Schussler said BankServAfrica data confirmed that the economy remained subdued and that prices of everyday goods were expected to increase. “We have seen the petrol price increase by 13.8 percent [from] a year ago, and maize prices reached R3 000 a ton for the first time in January.”

Johannes Khosa, an economist from the Nedbank unit, said: “The outlook is still fragile, but we anticipate that the Reserve Bank will raise rates once more in March in order to contain inflationary pressures related to the weaker rand before keeping them on hold well into 2015.”

Investec economist Kamilla Kaplan said the underlying trend, depicted by half- and full-year rolling averages, did not indicate there would be a meaningful recovery in retail sales growth in the coming months. She said the trade conditions survey for January suggested the consumption of retail goods moderated into the new year.

“Taken together, these considerations are consistent with softer dynamics in consumer spending.”



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