Retailers are in for a slow start to the festive season, as sales for the months leading up to this period continue to disappoint.
Statistics SA data released yesterday showed retail sales in real terms grew 1.3 percent year on year in October, up from 0.1 percent in September.
Reuters reported that economists had expected sales growth of 1.2 percent.
“Households are likely to remain cautious of spending on non-essential items in the months ahead given the current unfavourable economic conditions,” Nedbank’s economic unit said.
Economists said retail sales were affected by weak consumer demand and suppressed confidence levels.
According to the FNB and Bureau of Economic Research consumer confidence index for the fourth quarter, consumers are feeling worse than they did at the height of the global financial crisis at the end of 2008.
Investec’s chief economist, Annabel Bishop, said the year-on-year retail inflation rate dropped to 3.7 percent from 4.3 percent in August on margin pressure.
Growth in the disposable income of households had slowed in an environment of sharply rising state administered prices and poor employment prospects in the private sector.
Bishop added that household finances continued to deteriorate, with 48.1 percent of South Africa’s 20 million credit-active consumers not in good standing in the latest official statistics.
The biggest contributors to the 1.3 percent retail sales increase were retailers in textiles, clothing, footwear and leather goods.
The biggest decline was registered by retailers in furniture, appliances and equipment, whose sales fell by 5.9 percent year on year.
Seasonally adjusted month-on-month retail sales decreased by 0.4 percent in October. This followed a month-on-month decrease of 0.8 percent in September and a 1.1 percent increase in August.
Bishop said economic growth remained well below potential, “and it is crucial that the ease of doing business improves in South Africa, so government regulation, centralisation and controls need to be reduced”.
Nedbank added that the weak retail sales numbers, together with the consumer inflation data released yesterday, suggested that demand pull inflation was still contained, but upside risks remained because of the weaker rand.
Annual consumer price inflation was 5.3 percent last month, down from the rate of 5.5 percent recorded in October.
Bishop said that only by tripling the size of the private sector could South Africa provide job opportunities for the unemployed and run a fiscally sustainable state in the long term.
“We do not expect a robust festive season in the retail sector, and believe retail growth will be below last year’s in this period as many households battle to make ends meet,” she said.
This situation was likely to worsen next year as households were highly indebted. At the same time, administered prices were rising very rapidly and no relief was on the horizon in terms of debt servicing costs and taxation, Bishop said.
“Clearly, the solution is to reduce government spending, and so lower taxation to promote business activity and bring households relief.”