Higher retail sales signal South Africa may have dodged a recession. 

Retail sales ticked up in June, signalling that the economy evaded a recession in the second quarter following the first three months’ shock 3.2 percent plunge in gross domestic product (GDP). Statistics South Africa (StatsSA) mentioned that its data showed retail purchases lifted 2.4 percent year-on-year in June, following a 2.3 percent rise the previous month.

Month-on-month sales went up 0.3 percent from 0.1 percent the prior month. However, sales of durable goods, including hardware and furniture, suggested that consumer confidence was subdued, with households holding off on bigger purchases amid a weak economy and high unemployment rate.

These figures added to the growing evidence that the economy returned to growth in the second quarter.The June retail figures add to the growing evidence that the economy returned to growth in Q2.

Measured at the quarter-on-quarter seasonally adjusted, annualised rate that aligns with official GDP, the retail, mining,
and manufacturing sectors all returned to growth in Q2. Our GDP tracker suggests that the economy grew by 1.6 percent. The return to growth increases the risk that policymakers will leave their key interest rate on hold at 6.50 percent next month, rather than – as economists expect – cut to 6.25 percent. They may also be spooked by the rand’s recent weakness.

The SA Reserve Bank cut its benchmark repo rate by 25 basis points to 6.5 percent in July – the first rate cut since March last year in an attempt to alleviate pressure on the embattled economy. In the first quarter, retail sales underwhelmed, as did the manufacturing, mining and agriculture sectors.

However, activity data from both the mining and manufacturing sectors last week showed the key sectors both rebounded in the second quarter. StatsSA is scheduled to release second quarter’s GDP growth rate early September. The June figures gave an indication of how the trade sector would contribute to the second quarter’s GDP result.

That is, on a quarter-on-quarter seasonally-adjusted annualised basis (which is the measure used to calculate GDP), activity within the retail sector rose by 4.3 percent, markedly above Q1.19’s 2.5 percent quarter on quarter seasonally adjusted annualised contraction. While the Q2.19 result is somewhat positive, it is supported primarily by low base effects, following a disappointing  first quarter, which was characterised by extensive load shedding, amid a climate of subdued confidence.

Article by Kabelo Khumalo