Growth figures likely to reflect an economy taking strain

● Power-supply challenges late last year are likely to dampen an already weak forecast for growth in 2018.

Electricity cuts, which started in November, continued into the new year and are expected to have resulted in slower growth in the mining, utilities, manufacturing and retail sectors.

Retail recorded the worst sales growth in 16 years in December. This is despite the sector helping resuscitate the economy from recession in the first half of last year.

Growth data for the fourth quarter of 2018 and for last year overall will be published by Stats SA on Tuesday.

Consumer struggles with rising taxes and higher fuel prices — even though inflation was muted and interest rates were mostly held steady — had resulted in pressure on the margins and share prices of retailers, including food retailers, which are generally considered defensive stocks.

Lester Davids, a trading desk analyst at Unum Capital, said: “To a certain extent it reflects the dire growth conditions. There will be a bit of impact in terms of GDP.”

The trade sector, under which retail is categorised, contributes 15% to GDP.

Retail trade sales fell by 1.4% in December. For the fourth quarter of 2018, however, retail trade sales remained resilient, boosted by strong performance in October and November as consumers took advantage of Black Friday discounts.

Elize Kruger, a senior economist at NKC African Economics, said this suggested “that consumers have started to change behaviour to capitalise on the attractive offers on Black Friday, which have almost evolved into ‘black week’ given that offers were available for longer periods”.

The splurge on Black Friday had, however, dampened Christmas sales at some retailers.

For the fourth quarter overall, retail growth would remain strong, growing by 3.3% given the strong sales performance in October and November. In the third quarter of last year the sector rose by 5.7%, she said.

Kruger forecast that real growth in wholesale, retail trade, catering and accommodation would be 0.2% for 2018, which would rise to 1% for 2019 and 1.8% next year.

Jeffrey Schultz, an economist at BNP Paribas, said the outlook for consumers would remain tough this year, though he added that consumers had reduced debt in recent years and were “well cushioned” to weather the challenging environment.

He expected inflation to remain well contained, with the Reserve Bank unlikely to hike rates soon. “We are not expecting the retail sector to shoot out the lights in 2019 but rather remain relatively stable as consumers look rather to tighten their belts in areas they can control. This would be in the general dealer (supermarket) and other nondurable and semi-durable retail space.”

This would be exacerbated by a poor outlook for the labour market as the government is also looking to trim employee costs. Higher sin taxes, fuel prices and no inflation adjustments to marginal income tax brackets were also likely to weigh on consumer confidence in 2019, he said.

Schultz said the agricultural sector was expected to remain resilient after a damaging drought early last year.

The mining sector, which has dipped back into recession, faces headwinds from US import tariffs on steel and aluminium, high electricity prices, hefty wage demands and growing evidence of slower global growth, which could affect commodity prices. These were “ingredients for a dire outlook for the mining sector in coming months,” Kruger said.

Economists still forecast growth of 0.7% for 2019. But a risk for growth in the coming months is the electricity tariff hike the energy regulator may approve later this week.

Eskom has applied for a 15% tariff increase for the next three years.

“A number in double digits would further dampen growth and investment in key supply side sectors,” Schultz said.

But a lower tariff than requested may present more challenges for the fiscus as it could mean substantial government financial support for Eskom may be required.

We are not expecting the retail sector to shoot out the lights in 2019 … as consumers tighten their belts

Jeffrey Schultz

Economist at BNP Paribas