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Cooling trend in retail likely to continue

| Economic factors

A weak domestic labour market, households’ subdued credit uptake, rising inflation and low consumer confidence are likely to "keep a lid" on consumer spending in the medium term, according to economists who were reacting to lacklustre retail sales figures released.

In July retail sales growth slowed, underscoring reluctance among South Africans to open their wallets because of rising borrowing costs set off by interest rate hikes and poor pay increases.

In July retail sales rose 3.3% compared with the same period last year, Statistics SA data showed on Wednesday. In June retail sales had risen 3.8%.

The slump will likely translate into the sector making a moderate contribution to economic growth. Also, a lukewarm retail sector does not bode well for SA’s growth prospects, which have been driven historically by consumer spending. However, spending remains weak.

Wholesale, retail and motor trade, as well as catering and accommodation together are the third-biggest contributor to gross domestic product at 13.6%.

But the cooling trend in retail might extend into the festive season as companies continue to announce job cuts while interest rates are expected to rise further.

The 3.8% year-on-year sales increase in June, for example, was driven more by lower base effects stemming from last year’s platinum sector strike than a spending rise. The same factors may have been at work in July, the economists said.

FNB Economics senior industry analyst Jason Muscat said: "We suspect there are still base effects at play and once those are done, we do not think this kind of momentum in retail sales will be sustained."

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