JOHANNESBURG - South Africa is expected to exit the technical recession in the third quarter, after Statistics South Africa reported a 2.5 percent growth in retail sales for August, following an upward 1.4 percent recorded in July and beating market expectations of a 0.3 percent rise.
Economist are now confident that the latest retail figures signal a potential recovery from the recession in the third quarter, but have warned that the performance of the mining industry would likely drag the economy down.
Lara Hodes, an economist at Investec, is expecting an economic recovery in the third quarter and also believes that retail sales will likely contribute modestly to economic growth in the third quarter.
“Indications are that we will be trading out of the recession in the third quarter. Mining production could be a negative contributor to growth. We are, however, waiting for next week’s mini-budget for a clearer picture of the economy,” she said.
Mining and manufacturing are important sectors with the bulk of South Africa’s economy driven by consumer spending, which accounts for more than 60percent of gross domestic product. Mining output in July declined by 5.2 percent year-on-year and household spending is under strain as rising petrol costs and the VAT places pressure on consumers. Mining production statistics for August are scheduled to be released today.
Mike Schussler, a director at Economists.co.za, said the latest retail figures signalled a strong chance that South Africa could shrug off the technical recession. “There is a 70 percent chance that we will be out of the recession during the third quarter, ” he said. He also said the retail sales for the period were buoyed by the backdating of salary increases for civil servants in July and August and the late salary adjustments of Eskom employees and some municipal workers.
Retail sales figures pointed to a significant jump in the furniture and household equipment segment, which advanced by 10.4 percent in August from 6.8 percent in July.
The general dealers segment was up to 1.7 percent from 0.5 percent in July and textile, clothing, footwear and leather almost doubled to 6 percent from 3.1 percent in July.
Pharmaceuticals goods & cosmetics were up 3.1 percent from 2.1 percent in July, while sales rebounded for food, beverages and tobacco to 0.3 percent from -1.9 percent in July. Sales of all other retailers slowed to 2.3 percent from 6.3 percent in July. However, on a monthly basis, retail trade was up 0.6 percent, easing from a 1.4 percent increase in the previous month.
Signs of an economic recovery in consumer confidence emerged this week with supermarket chain Pick n Pay reporting a 6.4 percent growth in turnover in the six months ended August compared to last year as it rode the wave of fuel hikes.