Johannesburg - South African retail sales rose more than expected in May to their strongest level in more than two years, signalling the economy may be on the mend after contracting in the first quarter of this year.
Retail sales rose by 4.5 percent year on year in May, the strongest rise since early 2014 after expanding by a revised 1.6 percent in April, Statistics SA said yesterday.
On a month-on-month basis, sales rose 3.4 percent and were up 3 percent in the three months to May compared with the same period last year.
Manufacturing data on Tuesday showed output had increased more than expected in May to its strongest level in nearly a year.
Sales growth
The retail sales growth was driven by a 4.5 percent year-on-year increase in general dealer sales, which accounted for 1.8 percentage points of the improvement. This was contrasted by a minus 4.7 percent and minus 8.7 percent year-on-year contraction in food and beverage, and furniture sales respectively, which shaved 0.8 percentage points off the total number.
Investec chief economist Annabel Bishop said despite the dovish global monetary policy, the SA Reserve Bank was yet to change its stance. “South Africa has seen a dial-down in the market’s interest rate hike expectations, with the repo rate not expected to lift before the end of next year. However, the Reserve Bank has yet to abandon its hawkish stance.”
She said the second quarter saw commodity prices recover, with tentative signs the industrial sector had pulled out of recession on a stronger performance from factory output.
“The economy could just manage to avoid a recession in the first half of this year, potentially recording a small fractional positive for the second quarter instead, and 0.2 percent year on year for the year as a whole,” Bishop said.
In their Momentum macro bulletin yesterday, Herman van Papendorp, the head of investment research and asset allocation, and Sanisha Packirisamy, an economist, said on average, retail sales volumes had picked up 3 percent year on year since the beginning of the year despite signs of mounting consumer headwinds.
They said that this could point to strength in the larger retail outlets, while the smaller retailers were probably facing challenging conditions as consumers came under increased pressure on the back of a squeeze in real wage growth, mild employment growth and slow household credit extension, and high levels of indebtedness curbing growth.
“Given the nature of discretionary goods, consumers have been able to extend their replacement cycle of items, such as furniture and vehicles, as the capacity to spend wanes in a challenging consumer environment.”
The South African economy, beset by high and persistent unemployment, has been hobbled by low commodity prices and a severe drought.
Recession
Overall economic output fell by 1.2 percent in the first quarter of this year mainly due to a slide in the mining sector, putting South Africa on course for its first recession in seven years.
Nedbank said: “The better-than-expected retail sales figures, together with manufacturing production numbers released (on Tuesday), are encouraging, but they are hugely influenced by the low base in 2015. Current general conditions remain weak and this is unlikely to improve significantly.”
It said although inflation surprised to the downside in the past two months, the outlook remained bleak on the back of the volatile rand and effect of the drought.
BUSINESS REPORT