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Retail sales rise bodes well for end of recession

| Economic factors

The rise in retail sales gives impetus to consensus among economists that SA may escape another quarter of no growth. SA’s GDP could rebound from recession, lifted by positive performances in manufacturing, mining and retail.

Retail sales rose 2.2% to R186bn in the second quarter, giving impetus to consensus among economists that SA may escape another quarter of no growth. The retail sector has been hit hard by a tightening of the lending environment and low consumer confidence, but has continued to surprise.

Despite retailers such as Woolworths and Checkers expecting lower sales growth for the year ending August 2017, retail trade sales recorded the strongest figure since November 2016 and expanded 2.9% year on year in June.

"The economic contraction in [the first quarter] was largely due to the poor performance of the retail sector, where sales fell 0.9% quarter on quarter," Capital Economics economist John Ashbourne said.

In the first quarter of 2017, seasonally adjusted retail trade sales decreased 1.1% to R177.8bn compared with R179.6bn in the previous quarter.

Ashbourne expected SA’s economy to turn around with a projected 2% growth in the second quarter of 2017 compared with the 0.7% contraction in the first quarter.

"The result, which when viewed with the June mining and manufacturing data, suggests that GDP could rebound by as much at 2.5% quarter on quarter in [the second quarter of 2017]," FNB senior economic analyst Jason Muscat said.

While consumer confidence remains damped, Muscat said the interest-rate cut in June was expected to provide modest relief, although he expected tax hikes in the February 2018 budget to affect the sector.

Stefan Salzer, partner and MD at Boston Consulting Group SA said: "We expect consumers to carry on focusing on necessity spending, meaning pressure will continue to grow for retailers and customers."

The contraction in the first quarter was largely due to the retail sector’s poor performance

Nedbank economist Johannes Khosa said retail sales picked up with lower inflation but said the sector was unlikely to continue to perform well. "The higher trend is unlikely to be sustained in the short term as consumer confidence remains depressed by a poor economic outlook, slow wage growth, job losses and political uncertainty."

Mining and manufacturing delivered resilient performances in the second quarter of 2017. In the first quarter, weak growth in the manufacturing and retail sectors offset the stronger performance in mining, which placed SA in a recession.

Meanwhile, the Manufacturing Circle is confident that activity will pick up in the third quarter. Executive director Philippa Rodseth said: "In spite of current challenging economic conditions, the manufacturing sector remains resilient and committed to growing the economy."

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