South Africa: Retail sales growth healthy but slowing to 4.3% y/y in Sept from 6.7% in Aug

South Africa: Retail sales growth healthy but slowing to 4.3% y/y in Sept from 6.7% in Aug

Retail sales growth slowed in Sept to 4.3% y/y, after recording annual growth rates of 6.7% and 2.9% in Aug and July respectively. The growth slowdown may be partly attributed to the transport strikes of Sept, which likely disrupted retail sales during the month. In addition, retail sales may have been constrained by a pickup in retail inflation, coupled with slower growth in household disposable income (see charts). Retail inflation has recently risen from 3.9% y/y in August to 4.5% in September, while growth in household disposable income appears to be trending downward, equalling 3.7% y/y in Q2 2012 versus growth of 5.6% for the same period in 2011.

Compared to Q2, retail sales growth in Q3 is lower across all dealer categories except for general dealers, pharmaceuticals, and furniture and appliances (see charts). Overall, retail sales growth has slowed from 5.2% y/y in Q2 to 4.6% in Q3. Although experiencing slower growth in Sept, retail sales nevertheless remain robust, supported by credit extended to households, particularly in the form of unsecured lending and credit card debt (see charts). Retail sales have been in positive growth territory since January 2010, driven to a large extent by growth in unsecured lending to households, which has grown by a considerable 110% since the start of 2010 (see charts). That being said, the role of unsecured lending as driver of retail sales may become less significant in months to come, as financial institutions are set to constrain the pace of unsecured credit extension.

Recent widespread strikes across several sectors are likely to continue to impact negatively on retail sales in months to come. Rising inflation may further constrict the growth in retail sales. Wholesale sales, which tend to lead retail sales by approximately 2 months (see charts), have recently slowed from 9.5% y/y in July to 6.7% in August. This provides further support to the expectation for slower retail sales growth in the near future.

Consumption remains far stronger than production, and will continue to put pressure on the trade deficit.