S.Africa's June retail sales slow as economy flirts with recession

PUBLISHED: Wed, 17 Aug 2016 14:44:48 GMT

JOHANNESBURG – South African retail sales slowed more than expected in June with purchases of credit-linked items declining sharply as consumer spending remained under pressure despite a recent pause in policy tightening by the central bank.

Retail sales grew by 1.7 percent year-on-year in June according to Statistics South Africa data on Wednesday, much slower than the 3.8 percent expansion predicted by a Reuters poll of analysts. Retail sales had grown 4.5 percent in May.

The economy is on the verge of a second consecutive quarter of contraction after shrinking 1.2 percent in the first quarter.

But despite the slowdown in retail sales, some economists say rebounds in the manufacturing and mining sectors may help Africa’s most industrialised country avoid a recession.

Manufacturing output rose 4.5 percent year-on-year in June, while mining production fell only 2.5 percent, smaller than double-digit contractions seen earlier in the year.

“June’s activity data suggest that the South African economy grew by about 2 percent q/q, thus avoiding a technical recession,” said Capital Economics Africa analyst John Ashbourne.

“But weak retail sales growth highlights the fragility of the economy,” Ashbourne added.

Sales in furniture, appliances and equipment fell by the most, contracting 10.4 percent year-on-year in June followed by a moderate slowdown in hardware goods and clothing.

Economist at First National Bank John Loos said the declining sales in durable goods was expected in an environment of high unemployment and rising lending rates, with consumers opting to delay purchases of big ticket items.

“It’s not surprising. It’s similar to vehicle purchases which can be postponed in tough financial times. And the fact that the SARB has paused rates at the last couple of meetings doesn’t seem to have helped yet,” Loos said.

The South African Reserve Bank (SARB) has raised rates by 200 basis points since early 2014, but kept them on hold at its May and July policy meetings.

(Reporting by Mfuneko Toyana; Editing by James Macharia)

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