Momentum in retail sales in South Africa is expected to slow in the coming months as consumer headwinds intensify, in spite of activity beating market forecasts in April.
Retail sales accelerated 3.4 percent in April compared to the same month a year ago, mainly driven by general dealers and retailers specialising in clothing and textiles.
This followed an upwardly revised 1.7 percent rise in March, beating market estimates of a 1.6 percent increase.
The current reading marked the strongest growth in retail activity since January.
Statistics South Africa (Stats SA) on Wednesday said the largest positive annual growth rates were recorded for sales of household furniture, appliances and equipment at 6.8 percent.
The textiles, clothing, footwear and leather goods category also recorded positive growth of 6.4 percent and general dealers went up by 5.4 percent.
However, the hardware, paint and glass category continued its downward momentum, with sales falling for the 10th consecutive month by a further 8.3 percent year-on-year, following April’s revised 8.9 percent decline.
The hardware category has seen a marked decline as many companies have mandated a return to the office or a hybrid working policy, decreasing demand for DIY and home enhancement related products.
Investec economist Lara Hodes said the April retail sales reading was in line with the results of the latest business confidence release by the Bureau for Economic Research (BER).
BER’s survey indicated that semi-durable retailers experienced “continued improvement, albeit off a low base” in the second quarter of 2022, while sales of goods in the non-durable category “were surprisingly strong”.
Hodes said many households were still financially stretched in the current economic environment.
“Unemployment remains at heightened levels, amidst a sluggish labour market, while elevated administered and food prices continue to dilute disposable incomes,” she said.
“Moreover, rising interest rates are weighing heavily on the indebted, with the probability of a further 50 basis points rate hike by the South African Reserve Bank in July.”
On a monthly basis, Stats SA said retail trade fell 0.2 percent compared to an upwardly revised 0.8 percent rise in March.
Over the three months to April, the retail sector grew by 1.4 percent compared to the same period a year ago.
Considering the first four months of 2022, data showed that retail sales grew 2.9 percent.
Nedbank economist Tachin Ramnath said the termination of most lockdown restrictions was expected to support employment and income throughout the year, resulting in increased spending.
However, Ramnath warned that the general economic conditions remained subdued.
He said the ongoing hostilities in Ukraine will continue to place upward pressure on food and fuel prices.
“As a result, domestic price pressures are expected to remain high, breaching the Reserves Bank’s upper target range for a few months, which could prompt the Reserve Bank to hike interest rates more rapidly,” Ramnath said.
“Furthermore, tighter global monetary policy in response to surging inflation makes the rand vulnerable to weakness, adding further upward pressure on the price of imported goods.
“These factors are expected to erode consumers’ spending power and negatively impact retail trade.”
BUSINESS REPORT