Mariam Isa
18 June 2009
Johannesburg — RETAIL sales fell 6,7% in April compared with the same month last year, the biggest fall since records began in 2003, backing the case for the Reserve Bank to cut interest rates again at its policy meeting next week.
Yesterday's official data for the economy's third-biggest sector were worse than expected, adding to evidence that output is contracting for the third quarter in a row.
"Retail sales are likely to remain weak throughout the year," said Nedbank economist Johannes Khosa. "Falling income due to rising job losses, reduced pay and falling asset prices is likely to keep consumers away from shops."
SA has slipped into its first recession in 17 years, with factory output plunging in response to the global downturn and a sustained retreat in consumer demand.
Rating agency Standard & Poor's (S&P) said yesterday it expected SA's economy to shrink at least 1,5% this year, and remain "well below trend" next year, in line with independent forecasts.
It affirmed the country's BBB+ investment-grade credit rating, but said the outlook remained negative, due to SA's heavy reliance on volatile portfolio inflows to finance its current account deficit.
Lungisa Fuzile, the Treasury's head of asset and liability management, said that given the global context, the affirmation of SA's credit rating was "good news".
"As much as we would have liked things to change for the better, in a context where other countries have either been downgraded or had their outlooks revised for the worst ... what we have received is good news," he said.
Fuzile said it was clear SA's economy would not grow 1,2% this year as the Treasury had predicted in its February budget.
Given that tax revenues may not meet expectations, he said it also "stands to reason" that SA might end up with a "slightly higher" budget deficit than the projected 3,8% of gross domestic product (GDP).
S&P said the shortfall would peak at more than 4% in fiscal 2009-10. Its credit analyst, Remy Salters, said the affirmation of SA's rating reflected the country's prudent macroeconomic policies, a moderate debt burden, and stable political institutions. "These are balanced by continued high reliance on external portfolio inflows in the context of a significant current account deficit, and severe structural socioeconomic weaknesses," he said.
SA's deficit on the current account, its broadest measure of trade in goods and services, widened to 7,4% of GDP last year, a 36-year peak. It was likely to fall this year, but public sector investment would keep it relatively high at 5,4% of GDP, Salters said.
Fuzile told Reuters the Treasury was confident SA would continue to attract the foreign capital it needed to finance the deficit. "The positive surprise of portfolio inflows we've witnessed" this year was a "clear vote of confidence from foreigners", he said.
But Salters warned that any "sharp" loosening of economic policies would put "downward pressure" on SA's ratings.
Last month's Cabinet appointments by President Jacob Zuma have backed his pledge that SA's prudent macroeconomic policies would remain in place. But trade unions, which drove his rise to power, are campaigning vigorously for policy change, through looser monetary and fiscal policy.
The Bank has lowered the repo rate by 4,5 percentage points to 7,5% so far this year, and most analysts expect another cut of half a percentage point at its policy meeting next week. There could be a similar reduction at its next meeting in August. But this may not be enough to satisfy the Congress of South African Trade Unions or the National Union of Metalworkers of SA, which are threatening strikes. They meet Bank governor Tito Mboweni today.
Analysts said the retails sales dive in April, after a revised 4,9% fall in March, could be blamed partly on the many public holidays in the month. But the details showed there was still broad-based weakness in the sector, which makes up 14% of the economy. Durable goods sales fell 7,7% versus the same month last year. Hardware, paint and glass sales dived 28,5%.
In the three months to April, retail sales fell 5,4% versus the same period last year. "There is no doubt that South African consumers are under pressure," said Stanlib economist Kevin Lings.
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