Retail sales fell an annual 0,5% in December after a 0,2% decline in November — which was revised down from an earlier estimate of 0,2% growth, Statistics SA said yesterday.
The sector is the economy’s third-biggest, and news that it contracted for the first time since the start of 2001 backs the view that higher interest rates will curb growth sharply this year.
Power outages last month are likely to have put more pressure on retailers, whose profits were already being eroded by receding consumer demand.
“I think it will look a bit nasty for a while. Retail sales are likely to remain in negative territory in the first quarter,” said Nedbank chief economist Dennis Dykes.
Retail sales for the whole of last year grew 5,1% at constant prices, slowing from 9,6% in 2006 and the lowest rise since 2003. During the final quarter of last year they grew 0,3% — also the lowest pace since early 2001.
“The data appear to provide clear evidence that tighter monetary policy is having a significant dampening effect on consumer spending,” said Citigroup economist Jean-Francois Mercier.
“Such growing evidence of moderating economic activity probably offsets in part upside inflation risks, suggesting to us that interest rates will remain on hold in the foreseeable future.”
The Reserve Bank has raised interest rates by four percentage points since June 2006 in a bid to restrain rising inflation, which has breached its 3%-6% target range for nine months running.
That has pushed debt service costs as a ratio of household disposable income above 10% for the first time in eight years. The Bank kept its key repo rate steady at 11% early this month, giving more weight to the threat to growth than to the deteriorating inflation outlook.
Many economists believe the expected slowdown this year — after four years of 5% growth — will prompt the Bank to start cutting rates later this year. But others think this is unlikely until inflation is clearly heading lower, which may not happen this year.
The annual rise in the CPIX gauge monitored by the Bank rose 8,5% in December and is expected to stay outside its target range until the end of this year.
Stats SA said the slowdown in retail sales began in June last year, when stricter lending criteria were introduced to curb rapid credit growth.
Sharp falls in sales of durable goods like furniture and household appliances — which are most sensitive to changes in interest rates — have spurred the trend. In December, this category dived by an annual rate of more than 15%, deepening from a fall of nearly 13% in November.
But sales of specialised food retailers picked up during the month, while sales of textile, pharmaceutical and general retailers also performed well.
The data followed news of a sharper than expected slowdown in manufacturing during the same month, when output rose by an annual rate of just 0,3%.
Manufacturing is the second-biggest sector of the economy, making up more than 16% of gross domestic product. But consumer demand is its main growth engine.
“A crashing retail sector will not be in the interest of the economy and may force a rethink on the monetary policy stance,” Standard Bank said. This could prompt a rate cut in the third quarter . “Although economic and financial conditions are going to be tight in 2008, a total collapse in consumer spending is unlikely.”