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Retail sales growth hits low gear in tight times

| Economic factors

Retail sales growth slowed much more than expected in June compared to a year ago, as consumer spending continues to be under pressure.

Weak retail sales growth highlighted the fragility of the economy, economist John Ashbourne at Capital Economics Africa said.

But despite growth in retail sales slowing to 1.7% year on year in June from 4.5% in May, sales are still expected to contribute positively to economic growth in the second quarter.

The slower-than-expected retail sales data, released by Statistics SA on Wednesday, adds weight to forecasts for interest rates to likely remain on hold in September.

The slowdown in real retail sales growth was not surprising and mirrored the lacklustre growth performance observed in household credit extension and the depressed levels of consumer confidence, BNP Paribas economist Jeff Schultz said.

The loss of nearly 500,000 jobs in the first half of 2016, coupled with elevated domestic inflation and the delayed effect of the cumulative 200-basis points rate hikes were all likely to continue to keep a lid on retail sales growth, particularly of durable goods, in the second half of the year, Schultz said.

Durable goods retailers were already feeling the effects of lower household spending, the data showed. The sales of household furniture, appliances and equipment contracted for the fourth consecutive time year on year in June.

The sales of general dealers; food, beverages and tobacco in specialised stores; and pharmaceuticals and medical goods, cosmetics and toiletries boosted annual growth in retail sales in June.

This suggests that consumers are spending more on necessities and cheaper items during these tough economic times than on more expensive durable goods such as furniture and equipment.

Growth in local retail sales was likely to slow further in line with weak economic and disposable income growth, FNB economist John Loos said.

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