Retail activity in South Africa is expected to remain subdued in the coming months after sales fell to a nine-month low in March, on the back of the rising cost of food, driven by load shedding and higher interest rates.
Data from Statistics South Africa (Stats SA) released yesterday showed that retail sales shrank faster than expected, falling by 1.6% in March compared to the same month a year ago.
This was the fourth consecutive month of decline in retail activity following an upwardly revised 0.7% fall in February, and the most pronounced since June 2022.
This March sales figure was a significant decline compared with market estimates of a 0.7% decrease, as six of the seven retail categories fell, with the ongoing power crisis hitting the food, beverages and tobacco retailers hard.
Sales also continued to decrease for general dealers as they fell 1.9%, pharmaceuticals and medical goods, cosmetics and toiletries eased by 3.2%, while hardware, paint and glass slowed to 3.9%.
The only exception was textiles, clothing, footwear and leather goods, which grew by 6.3%.
Investec economist Lara Hodes said the retail environment in South Africa remained “trying”, and recent trade surveys for the first quarter suggested a sector under pressure.
According to the Bureau for Economic Research, retail confidence dropped to 34% from 42% in the first quarter of 2023, the weakest reading recorded since the second quarter of 2020.
Hodes said the electricity supply predicament continued to weigh heavily on costs, reducing profitability.
“Consumer sentiment remains lacklustre as the spiralling cost of living erodes disposable incomes. The indebted are also having to contend with rising interest rates, with a further hike expected next week,” Hodes said.
“Accordingly, we don’t anticipate a meaningful pick-up in household consumption expenditure -- which comprises around two-thirds of GDP -- in the short-term. Growth for this year is projected at 0.2%, with downside risks remaining.”
On a monthly basis, retail sales were down by 0.7% in March, after an upwardly revised fall of 0.3% in February.
Retail trade sales decreased by 1.0% in the first quarter of 2023 compared with the first quarter of 2022.
The March 2023 retail trade sales statistical release concluded the results for how the economy was performing in the first three months of this year.
In the first three months, retailers in hardware, paint and glass recorded a 1.1% drop in sales, representing an eighth consecutive quarter of decline.
South Africa’s economy is being severely impacted by energy shortages, leading to increased operating costs for local producers and retailers, especially in the food sector which, in turn, contributes to higher inflation levels.
As a result, analysts widely anticipate the SA Reserve Bank to continue its tightening cycle by implementing a 25 basis points hike next week as inflation remains at 7.1%, above its target range of 3-6%.
FNB senior economist Siphamandla Mkhwanazi said the sharp increase in production and operational costs induced by load shedding would eventually weigh on corporate margins and, consequently, employment and wage gains.
“These, combined with elevated inflation and rising debt servicing costs, as well as depressed consumer confidence, suggest a muted household consumption expenditure growth prognosis,” Mkwanazi said.