Retail sales rise means SA may avoid recession

Uptick in consumer spending renews optimism

South African money
South African money

SA’s retail sales jumped 2.4% in April, led by clothing retailers, adding to hopes that a technical recession may be avoided in the second quarter.

Retail sales grew at twice the rate expected in the Bloomberg consensus, with Statistics SA’s release on Wednesday, after data on Tuesday showed manufacturing jumped 4.6% in April, the fastest pace in three years.

The retail sector is an important indicator of consumer spending, which drives growth in the economy as it accounts for just more than 60% of GDP.

Retailers in the textiles, clothing and footwear sector led the gains, Stats SA said, with sales growing 6.4% year on year.

Retail sales in the pharmaceuticals and cosmetics category grew 5.3%.

Seasonally adjusted retail sales increased 0.8% in April month on month, rebounding from a 0.7% contraction month on month in March.

Retail trade sales increased by 1.3% in the three months ended April 2019 compared with the three months ended April 2018.

The uptick in sales could be attributed to increased shopping activity during the Easter holidays, as well as base effects from the March load-shedding, which subdued shopping activshopping ity, FNB economist Siphamandla Mkhwanazi said in a note.

“While the April print is a welcome development, pressure on consumers’ discretionary income, via weaker labour markets and higher income taxes, is expected to keep activity relatively muted this year,” Mkhwanazi said.

A Reserve Bank interest-rate cut in July, however, could help boost activity.

April is the first month of the second quarter and focus will now shift to mining data on Thursday.

The Bloomberg consensus is for a 0.5% contraction in mining output in April year on year.

SA’s economy shrank 3.2% in the first quarter of the year, hit by load-shedding, though economists expect activity to pick up a little as 2019 proceeds.

The retail sales figures, along with manufacturing data on Tuesday, had boosted the chance that SA might have avoided a recession, though general conditions remained subdued, Nedbank Group Economic Unit economists Dennis Dykes and Johannes Khosa said in a note.

“The weak economic climate, downward surprises to inflation and expectations of lower global interest rates in the short term make an early easing by the Reserve Bank more likely,” the economists said. –