August figures for retail and mining to remain subdued
PPoor economic and trading conditions have dragged down performances in the retail and mining sectors, two major industries whose August 2018 data will be released this week.
Together with manufacturing, these sectors are an important dipstick for economic productivity in SA.
Consumption constitutes about 60% of GDP, but declines in household spending have shrunk consumption, mainly as hefty fuel price hikes pushed petrol prices up 25% in the past seven months.
The average household income is also expected to remain under pressure in coming months as the effects of April’s one-percentage-point VAT increase as well as other tax hikes continue to filter through. An upwards creep in inflation also continues to restrain expenditure.
Economists are not expecting good news for August and most are forecasting a contraction. NKC African Economics chief economist Elize Kruger expects -0.5% for August compared with July’s year-on-year growth rate of 1.3%, a sign of consumer strain.
Kruger forecast growth of 2.7% between August and July this year.
But the sector may be helped by the effects of a public sector wage settlement earlier this year and the associated back pay, which is now expected to support consumption growth despite the weaker rand and higher oil prices.
FNB chief economist Mamello Matikinca said: “There is nevertheless downside risk to our outlook, as the base from August 2017 was very high.”
A Bloomberg survey of economists has forecast a yearon-year contraction of -0.1% and -0.8% on a month-onmonth basis.
Stats SA will publish retail sales on Wednesday. Mining production and sales, which will be released on Thursday, are also expected to show up worse than this time last year.
“We expect slowing global demand and subdued commodity prices to deliver a mild contraction in the month,” said Matikinca.
The Bloomberg survey expects an improved -4% year on year in August 2018, compared with the -5.2% year on year in July this year.
On a monthly basis, growth of 0.5% is expected.
Kruger forecasts a much worse contraction of 7.3% owing to a high base of calculation and the reversal of July’s shock decline, which was driven by once-off events such as the fire at Palabora copper mine in Limpopo and a breakdown of machinery at an iron ore mine.
NKC forecasts month-tomonth growth of 3.7% compared with -8.6% in July.
Compounding the domestic challenges is the trade war between the US and China. It may dampen Chinese demand and lower commodity prices, which is a negative for commodity exporters. But Kruger said the weaker rand would buoy the mining sector over the next few quarters.
The currency, which weakened to R15/$ in previous days, briefly retreated to R14.56 last Tuesday following Tito Mboweni’s appointment as SA’s new finance minister.
Novare economic strategist Tumisho Grater said Mboweni’s appointment “sent the right signals” to investors that the X Treasury is stable, while the markets “took comfort” that Mboweni is likely to stick to a prudent fiscal path set by his predecessor, Nhlanhla Nene.
Other second-tier data to be released this week include statistics for civil cases of debt in August on Wednesday and private sector building statistics for August on Thursday.