Tough first quarter for South African economy
Four important StatsSA data releases of last week - together with the previous week’s manufacturing data showing a 1.6% quarterly decline - confirm the view that the local economy struggled in the first quarter. Real retail sales grew by 1% year-on-year in March, down from 2.3% in February. Year-on-year comparisons can be tricky this time of year due to the Easter long weekend shifting between March and April, but the second consecutive month-on-month decline (-1.4% in March and -0.3 in February) suggests that the weakening trend in retail spending is resuming. January’s strong numbers now appear to be an outlier. On a quarterly basis, seasonally adjusted retail sales increased by only 0.6% in real terms in the first quarter compared to the last quarter of 2014. Compared to the first quarter of 2013, growth was 3.2%.
Implied retail inflation – the difference between the published nominal and real retail trade numbers – was 4.9% year-on-year in March, up from 4.2% in February. Price rises in retail goods are still well below those of services, energy and the cost of housing. But higher prices of goods probably contributed to weaker sales, and this is unlikely to improve in the near term.
Motor trade sales - a category that includes new and used vehicle sales and income of service stations – increased by 3.2% year-on-year in March. In the first quarter, nominal motor trade sales rose by 1.7% compared to the final quarter of 2013 (and that is before taking the effect of inflation into account). Falling real fuel sales indicate that South Africans are driving less.
Strike cripples mining output
Mining production suffered another year-on-year contraction in March, falling by 4.7%, after a 4.5% decline in February, due largely to the ongoing strike in the platinum sector. April’s mining figures will also show the impact of the strike, as will May’s, since there is no sign yet of resolving the strike. Instead, it appears to have turned violent. In the first quarter, mining production fell 6.8% compared to the final quarter of last year, with quarterly declines in the output of platinum, gold and iron ore – three
of South Africa’s four most significant commodities (the other, coal, grew 0.4% over the quarter).
The one sector that has done reasonably well over the past few months has been wholesale trade. At first glance, this trend seems intact since real wholesale trade sales rose 6% year-on-year in March. However, when comparing March with February, sales fell 5.2%. In the first quarter of 2014, wholesale trade sales increased by 1% compared with the previous quarter. Implied wholesale inflation also increased from 7.5% in February to 7.8% in March.
SARB’s headache
These numbers confirm the South African Reserve Bank’s (SARB’s) monetary policy dilemma: prices are rising due to a weak Rand, but the economy is battling. The recent improvement of the Rand should take some pressure off the SARB in the shorter term. All in all, we are still in a tightening cycle, but rates are expected to rise more gradually than in previous cycles.
