Retail sales figures deliver a late Xmas present
February 19, 2009
Retail sales declined less than expected in December in their best performance in eight months, easing expectations for an emergency Reserve Bank meeting to cut interest rates.
Sales fell by 0.1 percent year on year compared with a 4.4 percent decline at constant prices in November, said Statistics SA.
December sales marked the strongest performance since 0.2 percent growth in April 2008. Sales for the year, though, shrank 2.2 percent for the first annual decrease in nine years.
The data may temper speculation that the central bank will call an emergency meeting before its scheduled April sitting to cut interest rates, although fourth-quarter gross domestic product (GDP) figures due next week are the main focus. The central bank reduced the repo rate by 100 basis points earlier in February.
Despite the improvement, the data point to a sector in recession. A fourth-quarter contraction of 2.1 percent year on year will weigh on next week's GDP release.
"Essentially, it is much better than we expected, but the fact remains that retail sales continue to contract," said Absa Capital macro strategist Ian Marsberg.
"We do not formally expect an emergency meeting after next week's data, although it is a possibility. We are expecting a 100-basis-point rate cut in April."
Central bank governor Tito Mboweni said shortly after announcing a cut in the repo rate to 10.5 percent in February that the policy committee might hold a special meeting if economic data were poorer than expected.
The economy grew by a decade-low 0.2 percent in the third quarter of last year.
Some economists say it is headed for recession.
Consumers are under severe strain and manufacturing output is in decline following rate hikes totalling five percentage points between June 2006 and June 2008, in efforts to tame inflation.
Analysts now expect rate cuts this year to help boost growth as inflation slows.
The latest data suggest that retailers enjoyed a better-than-expected Christmas shopping period, possibly boosted by the positive sentiment linked to a 50-basis-point rate cut in December, which kicked off the loosening cycle.
A fast-expanding black middle class and the dominance of lower-income consumers, who are less vulnerable to stock market swings, helped shield retailers from the global economic downturn. Higher food prices also boosted sales.
Shoprite, Africa's biggest supermarket group, reported a 27 percent jump in turnover for the six months to December 2008 and a 43 percent leap in profit.
But analysts said the fact that the sector was in recession and that other industries such as mining and manufacturing were struggling showed the need for big interest rate cuts.
"I'm surprised the decline in December retail sales is as mild a contraction as that," said Brait economist Colen Garrow. "But it still falls into a sector that is in recession, which accounts for 13.8 percent of the GDP number.
"It serves as the impetus for cutting rates again, sooner rather than later." - Reuters
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