Rates slow retail growth to lowest in four years
January 17, 2008
By Tom Robbins
Cape Town - Retail sales growth has fallen to its lowest level in four years, and with consumers yet to feel the effect of last month's interest rate hike, the worst is still likely to come.
Statistics SA said yesterday that year-on-year November sales growth at constant prices had fallen sharply to remain effectively unchanged at 0.2 percent. In 2006 November sales climbed as much as 12 percent.
But unlike in the US, sales growth is still positive for now. On Tuesday it was reported that US retail sales for last month had unexpectedly fallen 0.4 percent, sending stock markets from London to Tokyo lower on fears that the world's largest economy was entering a recession.
In South Africa, furniture and appliance sales were again the main cause of the slowdown, falling 11.5 percent in nominal terms, or without adjusting for inflation.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said consumers had likely spent beyond their means last month and predicted a "terrible" January.
"If the Reserve Bank hikes rates once more [this month] it will be close to a disaster," said Du Plessis.
He believed Reserve Bank governor Tito Mboweni would hold rates steady, as an increase could even contribute towards sending the economy into a recession.
"The medicine is already working and inflation is likely to top out over the next three months," said Du Plessis.
Indeed, sales of items such as lounge suites and fridges have been falling since last June, when the National Credit Act came into effect.
Despite this shift, all other retail categories managed positive nominal sales growth in November, including less expensive discretionary items such as clothing. But Du Plessis said clothing sales only just held up in November and he expected those sales to turn negative this month.
Jean Francois Mercier, an economist at Citi South Africa, said retail sales would enter a real decline for the entire fourth quarter.
"This said, the decision remains a relatively close call," Mercier added.
Quinton Ivan, a portfolio manager at Coronation Fund Managers, said the momentum for retail sales continued its downward trend, with more pain to come for the consumer, as the hikes towards the end of last year still had to bite.
But Ivan said Coronation had a view that interest rates had now likely reached the top of the cycle.
"We believe there is more chance that the monetary policy committee of the Reserve Bank will pause in January than hike rates," said Ivan.
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