Christmas sales update

Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation.

Our recent Christmas sales outlook forecast December 2015 retail sales to grow by 7.4% in nominal terms and just 1% in real terms given the soft consumer outlook. From the consumer’s perspective, the difficult economic backdrop implies intense competition between retailers (especially food) and hence this may keep a cap on food inflation – for now.

Discretionary spend will also be impacted by the recent interest rate hike, with credit sales likely to be constrained as a result. The marginal over-recovery in fuel prices that will be announced on Friday 27 November – 6 cents per litre at best for petrol and 5 cents per litre for diesel – will not put much back into the pockets of manufacturers or consumers. The modest growth in real wholesale sales of 1% year-on-year in September coupled with the modest 6.5% year-on-year rise in nominal retail sales in the same month do not encourage us to expect a better outcome than originally forecast, bar that keen price competition may keep prices in check and allow for a moderately better outcome in real terms than the projected 1% rise. Cash-strapped consumers may well be forced to buy down (to cheaper price points) but this all points to a fairly lacklustre outlook for retailers this Christmas period unless a miracle occurs.

Further ahead, additional interest rate hikes will make financing of working capital more expensive which in turn will undermine any efforts to grow workforces. Rising food prices, probably into double digit territory, an electricity price hike of around 10% and lingering impacts of the drought imply tough trading conditions for many businesses in 2016.