By: Siphelele Dludla – IOL Business Report

Sentiment in the retail industry in South Africa has ticked up though it remains in contractionary territory as consumers have begun feeling confident that the cost of living is slightly easing.

The Bureau for Economic Research (BER) said on Monday that business confidence among retailers increased by six percentage points to 45% in the third quarter after aligning with the long-term average in the second quarter.

The BER said that consumers’ real disposable income was boosted by inflation at a three-year low while the absence of load shedding, the market-friendly election outcome, and expectations of an interest rate-cutting cycle likely also contributed to the rise in confidence among retailers.

The BER’s retail survey echoed the deceleration in price growth indicated by headline consumer price inflation, which slowed for a third consecutive month in August, cooling to 4.4% from 4.6% in July, the lowest inflation print since April 2021.

Among the different retail categories, BER senior economist Helanya Fourie said retailers of non-durable goods (food, beverages, groceries, cosmetics and pharmaceuticals) were the least optimistic, suggesting that non-durable goods retail sales grew slower during the third quarter of 2024 than the relatively robust growth recorded in the second quarter.

This comes as the annual food and non-alcoholic beverages inflation picked up in August, rising to 4.7% from 4.5% in July as most product groups registered higher annual rates after an eight-month downtrend.

Fourie said retailers of semi-durable goods (clothing, textiles and footwear) saw business conditions improve to above-average levels in the third quarter of 2024.

“However, as in the same quarter last year, these retailers seem to be pushing volumes to sell excess stock. Although expectations about sales volumes in the next quarter have improved, optimism remains constrained,” Fourie said.

“Durable goods retailers boosted overall retail confidence. Confidence among furniture retailers stood out, rising from 38% to 64% and reaching its highest level in three years.”

Meanwhile, wholesaler confidence fell marginally to 51% in the third quarter but remained above the long-term average, with more than half of wholesalers satisfied with prevailing business conditions.

Confidence among new vehicle dealers rose by 17 percentage points to 27%.

This was in spite of aggregate domestic new vehicle sales in August falling by 4.9% to 43 588 units, down from the 45 854 vehicles sold the same month a year ago, as the industry could not sustain the stronger July 2024 performance.

Although supported by seasonal sales to the vehicle rental industry, a 13-month high rand exchange rate, a three-year low 4,6% consumer inflation rate, decreasing fuel prices, the potential “end to load shedding” as well as definite prospects of lower interest rates on the cards before year-end all enhanced consumer sentiment during the month.

There is recognition that with interest rates at a 15-year high, two potential rate cuts before the end of the year, reducing the cost of borrowing, would not materially improve vehicle affordability challenges and household debts over the short term, but it would signal a positive shift to stimulate economic activities.

The BER said their outlook on business conditions and sales volumes improved significantly in the third quarter.

The BER’s motor trade survey results suggested that the worst may have passed for the sector, with consumer inflation at 4.4% in August, a stronger rand, fuel price reductions and the start of an interest rate-cutting cycle with the SA Reserve Bank cutting interest rates by 25 basis points to 8% per annum and the prime lending rate to 11.5%.

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