Retail growth grinds to a halt

2008-03-19 00:00

Consumers and retailers alike are feeling the painful effects of higher interest rates and the trend may convince the SA Reserve Bank (Sarb) to keep interest rates unchanged in order to prevent any further harm to the economy.

Some analysts argue that rates may remain unchanged in April, despite the fact that the Sarb yesterday warned that it will remain vigilant in light of expectations that consumer inflation will peak at a higher level than previously forecasted.

Retail trade data released yesterday reveals that growth in retail sales came to a standstill in the three months ending January 2008.

A year-on-year (negative) growth rate of -0,2% was recorded during the quarter, while growth in January 2008 came in at a mere 0,2%.

The latest figures do little to quell the view that the retail sector is heading for a recession.

Dr Johan Botha, senior economist at Standard Bank, told The Witness: "The outlook for the medium term is also dim … parts of the economy are under quite severe strain. This may force a rethink on the country’s monetary policy stance."

However, the possibility of a 0,5% rise in interest rates remains possible, due to high consumer inflation.

The release of the Sarb’s Quarterly Bulletin yesterday was also another reminder of this risk. Sarb Governor Tito Mboweni noted that Sarb’s resolve in bringing inflation back into the three- to six percent target range should not be underestimated.

Botha noted that households have adjusted their consumption downwards on the back of a slower increase in disposable income. "Consumption expenditure growth in the fourth quarter of 2007 was 3,7% compared to an average growth of 8,2% in 2006," he said.

He warned that a steep fall could bring GDP growth to levels last seen in the early part of this decade.

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