Better retail spending good news for economy

South Africa’s retail sales rose in August as household goods, clothing and cosmetics grew, data showed, with recovering consumer spending a sign the economy is climbing out of a recession that has piled pressure on President Cyril Ramaphosa.

Sales rose 2.5% year-on-year in August after increasing 1.4% in July, Statistics SA said.

The expansion was much more than the 0.3% growth forecast by a Reuters poll, and the highest rate of growth since May.

South Africa’s economy hit a recession in the second quarter, as declines in household expenditure due to record-high fuel prices and higher value-added tax combined with contractions in manufacturing and agriculture to hurt growth.

Trade accounts for 15% of gross domestic product (GDP), and improved retail spending is crucial to Ramaphosa’s economic revival plan and a promise to create an additional 275 000 jobs a year to ease record-high unemployment.

“This is good because it shows consumer spending, which accounts for about 60% of GDP, is recovering,” said Nedbank economist Johannes Khosa. “Although it confirms our view that growth came out of recession in the third quarter, the Treasury won’t read too much into the data because there is a chance of a big reversal next month.”

Next week’s medium-term budget will be closely watched for details of Ramaphosa’s stimulus plan, although analysts don’t except any major policy shifts and rather a focus on maintaining fiscal consolidation that has kept ratings agencies at bay. – Reuters