November 20, 2024

A View on Demand in the Economy: Retail Sales Performance

September 2024

Retail sales in South Africa rose 0.9% in September 2024, surpassing expectations of a 0.7% decline, signalling a modest recovery in consumer demand. Growth was led by general dealers, while textiles and clothing stores saw a 5.5% contraction. Despite tight budgets, anticipated interest rate cuts could further boost consumer confidence and demand.

Retail sales in South Africa once again exceeded market expectations in September 2024, growing by 0.9% annually and comfortably surpassing the predicted contraction of 0.7%. This growth indicates a modest resurgence in consumer demand, suggesting that consumer behaviour may be improving, especially as Business Confidence increased from 38 to 45 index points. Additionally, lower consumer inflation and an anticipated interest rate reduction by the South African Reserve Bank could further enhance consumer demand.

The growth in retail sales was largely driven by general dealers, who reported a 4.5% increase, contributing 2.1 percentage points to total growth. However, the largest negative impact came from retailers of textiles, clothing, footwear, and leather goods, which contracted by 5.5%, causing a reduction of 0.9 percentage points in overall growth.

Despite this positive trend, households remain cautious due to tight budgets and relatively high interest rates, even after the 25-basis point cut in September and another reduction expected in November. The effects of the September rate cut will only be visible in the October data, set to be released in December 2024. If the anticipated rate reduction in November occurs, it may boost consumer confidence and stimulate slightly higher consumer demand, ultimately contributing to the economic growth that South Africa desperately needs.

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Gross Operating Surplus

Company is crucial for investors and the government, influencing investment potential and tax revenue. The latest data from Statistics South Africa shows a 2.9% quarterly decrease in Gross Operating Surplus (GOS) but a 4.5% annual increase, indicating profitability growth. Notably, sectors like mining and transport exceeded inflation rates, signaling positive market sentiment and potential for increased investment in South Africa over the medium to long term.

South African Economic Performance

South’s economy unexpectedly contracted by 0.3% in Q3 2024, with six out of ten sectors growing. The agricultural sector significantly declined by 28.8%. Positively, manufacturing and finance showed growth, contributing to overall resilience. However, consumer demand and elevated prices in the economy remain concerns, while expected growth for 2024 is estimated at just 0.7%. Addressing policy clarity and structural reforms could enhance business confidence and stimulate growth.

Private Sector Credit Extension (PSCE)

In October 2024, credit extended by South African financial institutions rose by 4.3%, with increasing demand in most categories, despite remaining low overall. Recent interest rate cuts totaling 50 basis points may enhance property and fixed asset purchases in 2025 as consumers gain more disposable income, potentially boosting overall demand.

Producer Price Inflation

Producer Price Inflation in South Africa saw a deflation of 0.7% in October 2024, exceeding analysts’ expectations. This decline was driven by significant price drops in coke, petroleum, and related products. While overall inflation may remain low in the short term, rising costs for intermediate goods and administered prices raise concerns. Persistently low inflation could lead to interest rate cuts, potentially boosting consumer and business demand in 2025.

Another 25 Basis Point Interest Rate Cut

The South African Reserve Bank cut the interest rate by 25 basis points, contrary to some expectations for a larger reduction. Inflation remains within the target range of 3% to 6%, and positive signs for growth include rising confidence and stable electricity supply. Despite subdued manufacturing production, increased disposable income supports demand, contributing to a gradual economic recovery.