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Economists expect growth of 2% in June for the sector.
Economists expect growth of 2% in June for the sector.

Retail boost could steer SA away from a recession

ECONOMIC NEWS

By Sunita Menon - Aug 12th, 12:37

A rebound in economic growth in the second quarter of the year will likely see SA avert its second recession in two years. 

Stats SA figures are expected to show a slight boost in the retail sector, which would give the economy enough room to avoid another contraction. Economists polled by Bloomberg expect the sector to have recorded growth of 2% in June.

The retail sector is an important indicator of consumer spending; accounting for just more than 60% of GDP, it drives growth in the economy.

In May, retail sales grew a surprising 2.2% – up on the 1.7% expected by economists polled by Bloomberg. The sector grew 2.7% the month before, revised upward from 2.4%.

“We anticipate another relatively steady reading in the June retail sales print, primarily supported by general dealer purchases,” said FNB chief economist Mamello Matikinca-Ngweny.

Though consumers have been under strain, Matikinca-Ngwenta said the main factors informing the expected volume growth include deep discounting, interest-free lay-by sales and muted consumer inflation pass-through.

In the first quarter, the economy was hit hard by power cuts, which dented the retail and manufacturing sectors. The economy contracted 3.2%, more than the 1.6% contraction expected by economists polled by Bloomberg.

Last week, Stats SA figures were a mixed bag, showing contraction in the mining and manufacturing sectors in June, but overall growth in both sectors in the second quarter. Mining grew a marginal 0.6% for the quarter while manufacturing production rebounded with growth of 3.5%.

“Despite the weak performance of the manufacturing sector, June activity data strengthened our view that SA returned to growth in the second quarter after a sharp fall in the first quarter,” said Capital Economics economist John Ashbourne.

Stanlib chief economist Kevin Lings said: “This should ensure that SA avoids another negative GDP performance in the second quarter, thereby helping SA avoid slipping back into a recession.”

Despite the rebound in the economy, SA is expected to grow less than 1% in 2019, adding to the woes of President Cyril Ramaphosa, who came to power on a ticket of growth and job creation.

The Reserve Bank expects growth of only 0.6% this year – far below the National Treasury projection of 1.5%, which is likely to be revised down substantially at the medium-term budget in October.

The economy has not grown by more than 2% annually since 2013 and is struggling to gain momentum, despite political changes and Ramaphosa’s efforts to boost growth and lure investment into the country.

Lower growth forecasts will weigh on the fiscus, increasing the risk that SA will lose its remaining investment-grade rating from Moody’s Investors Service, which is scheduled to make its next ratings announcement in November.Business Live 

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