Consumers in South Africa are expected to continue struggling this year under the brunt of stubbornly high inflation, rising cost of borrowing and weak consumer confidence after retail activity plunged in 2023, in spite of sales outperforming expectations in the fourth quarter.
Data from Statistics South Africa (StatsSA) yesterday showed that retail trade sales fell by 1% in 2023 compared with 2022, reflecting a subdued consumer demand environment.
The retail sector has been struggling to recover as discretionary spending was halted by persistently high consumer inflation, which were at the upper limit of the SA Reserve Bank’s target range at 6.0%, forcing interest rates to remain at a 13-year high of 8.25% virtually the whole year.
StatsSA’s deputy director for distributive trade statistics, Raquel Floris said, “For the calendar year, retail trade sales decreased by 1.0% in 2023 compared to 2022. Six of the seven retail groups experienced a decline, with general dealers the biggest drag on growth,” Floris said.
“Despite its poor showing in the fourth quarter, textiles and clothing was the only retail group to have recorded a positive year. Textiles and clothing expanded by 5.7% in 2023 compared with 2022.”
FNB senior economist Siphamandla Mkhwanazi said they expect the decline in retail sales to persist in the near term, driven by sticky inflation, high interest rates and depressed consumer confidence.
Mkhwanazi said the prevailing tight lending standards and high debt service cost environment should keep credit growth relatively contained, both in the bank and non-bank sectors, and thus provide less support to consumption.
“That said, medium- to longer-term outlook is slightly brighter. Consumers should benefit from the slowing inflation trend, positive employment gains, and the extension of the Social Relief of Distress (SRD) grant,” he said.
“In addition, the contemplated, albeit modest, interest rate cutting cycle should help support spending on discretionary items. This should see household consumption expenditure lift from the estimated 0.8% in 2023, to around 1.5% in 2024.”
Indeed, retail trade sales ended the year in softer territory, with seasonally adjusted retail trade sales declining by 0.4% in the fourth quarter compared with the third quarter.
StatsSA said five of the seven retail groups were weaker in the fourth quarter, with the textiles and clothing group the largest negative contributor.
Investec economist Lara Hodes said the trade sector could detract marginally from the fourth quarter overall GDP outcome, depending on December’s wholesale trade sales and motor trade sales readings.
“Indeed, despite December’s result, overall consumers remain largely constrained, grappling with lacklustre real incomes. Average real take-home pay declined by 4.7% year-on-year in 2023. Household consumption expenditure which makes up a significant two-thirds of growth is projected at a moderate 1.6% in 2024, with expected interest rate cuts providing some relief to the indebted.”
However, retail sales unexpectedly rose by 2.7% year-on-year in December following an upwardly revised 1% decline in November and better than market forecasts of a 0.7% fall, with four of the seven retail groups recording stronger results.
It followed two consecutive months of declines and marked the strongest increase in retail activity since July 2022.
StatsSA said retailers in textiles and clothing, and general dealers drove much of the upward momentum.
According to BankservAfrica data robust sales were reflected over the traditionally busy December shopping season, with the highest expenditure and volumes recorded at grocery stores and supermarkets.
On a seasonally adjusted monthly basis, retail sales rose by 1.4% in December, the most since January 2022, after an upwardly revised 1.1% increase in the previous month.
Oxford Economics Africa head of macro Jacques Nel said although retail trade sales exceeded expectations in December, it was too late for retail activity to help a great deal in growing the economy during the quarter.
“Our base case remains for the South African economy to avoid a recession in the fourth quarter 2023, but we expect weak growth of 0.1% quarter-on-quarter,” Nel said.
“As a result, we estimate the economy expanded by a meagre 0.5% in 2023.”
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