Retail sector feels pinch

2008-10-15 00:00

The South African retail sector suffered further misery in August as growth in retail sales declined 5,5% year on year, confirming a widely-held view that retail demand is in recession.

The sector recorded its biggest decline in growth in seven years in August as consumers felt the pinch of higher interest rates and inflation.

Statistics South Africa said retail sales for the first eight months of 2008 fell 1,7% compared with the corresponding period last year.

However, the good news is that the retail sector’s “poor” performance in 2008 proves that the higher interest rate regime is having an effect on consumer demand.

This is likely to dissuade the Reserve Bank from increasing interest rates in the coming months.

According to Dr Johan Botha, senior economist at Standard Bank, the outlook for the sector remains poor. “Retailers are not only suffering from falling demand, but also high input costs, which have consequently impacted on profitability in the sector.

“We expect retail demand to be poor over the medium term, with the slowdown more pronounced in the durable goods sectors.

“Clearly, retail sales will remain under pressure until such time that fundamental drivers, such as disposable income, inflation and interest rates, improve. This is unlikely to happen before the second quarter next year,” he said.

Efficient Group economist Fanie Joubert said that consumers continue to experience high inflation in retail goods. “A worrying indication from the data is the implicit retail inflation which has risen from around 10% year on year in January to above 17% in August.

“This remains well above the latest CPI [Consumer Price Index] figure, adding continued pressure to general prices in the economy, from the retail side,” he said.

Nedbank’s group economic unit said that although retail sales may improve as the festive season approaches, this “seasonal effect” will be subdued due to the cautious spending habits of consumers.

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