Retail activity in South Africa is expected to continue on a downward slope after sales plummeted for a second month in a row in November 2023, in spite of Black Friday discounts.
This signals serious trouble for the economy in the fourth quarter as retail trade sales represent close to 20% of South Africa's gross domestic product (GDP), after GDP recorded a paltry 0.2% growth in the third quarter.
With December’s data the only remaining for the year now, the fourth quarter retail sales could contribute to disappointing GDP growth for 2023, which has been revised upwards to 0.8%.
Data from Statistics South Africa (StatsSA) yesterday showed that retail trade shrank by 0.9% year-on-year in November, following a downwardly revised 2.3% decline in October.
This marked the second consecutive month of declines in retail activity, albeit at a slower pace, as a result of stubborn inflation,
A disaggregation of the retail sales data indicated that the decline was largely broad based with five of the seven categories included in the retail index decreasing and only two categories recorded an expansion in annual volumes when measured on a year-on-year basis.
StatsSA said the hardware, paint and glass segment, which has been a key under-performer, declined by a further 5.3% in November, down from 6.5% contraction in October.
The textiles, clothing, footwear and leather goods grouping, which has seen impressive annual growth, slid by 2.0% in November.
According to the Bureau for Economic Research’s latest retail survey for the fourth quarter of 2023, some clothing and footwear retailers noted that congestion at South African ports led to the late arrival of their summer ranges in recent months, adversely affecting sales in the run-up to the summer holidays.
FNB senior economist Siphamandla Mkhwanazi said the November retail sales print was in line with sentiment indicators, especially in consumer facing sectors, which predicted weakening demand into the 2023 festive season.
“We expect subdued consumer demand to persist in the near term, weighed on by sticky inflation, high interest rates, and depressed consumer confidence. Indeed, the FNB/BER Consumer Confidence Index declined to -17 index points in 4Q23, the lowest festive season reading in more than 20 years,” Mkhwanazi said.
“That said, medium- to longer-term outlook is slightly brighter. Consumers should benefit from the slowing inflation trend, positive employment gains, and the extension of the Social Relief of Distress (SRD) grant. In addition, the contemplated, albeit modest, interest rate cutting cycle should help support spending on discretionary items.”
Conversely, the general dealers’ category which comprises the largest share of the retail index increased by 0.4%, in line with spending patterns observed during Black Friday.
As a result, retail sales rebounded by 0.4% in November on a seasonally adjusted monthly basis, following an upwardly revised 1.4% fall in October.
In the three months ended November, retail trade sales fell by 0.7% compared with the same period a year ago.
Investec economist Lara Hodes said dwindling disposable incomes as a result of inflated prices and high borrowing costs had resulted in consumers keeping spending to a minimum in November.
“Indeed, consumers remain largely constrained, grappling with a still elevated interest rate environment and lacklustre real incomes as inflation has ticked up,” Hodes said.
“Moreover, the expanded unemployment rate is still above 40.0%, evincing the extent of SA’s unemployment predicament.”