November 11, 2003

By Vernon Wessels

Johannesburg - A Christmas spending spree awaits the retail sector, with sales expected to rise by 9 percent to R50.2 billion this year, although growth of 10.5 percent to R50.9 billion could not be ruled out, Luke Doig, a Credit Guarantee senior economist, said yesterday.

A cut of 500 basis points in interest rates since June to their lowest level in 20 years might entice more consumers to purchase on credit, he said.

A sharp fall in inflation and wage settlements of about 9 percent had also boosted the spending power of individuals. But lenders should be prudent, as individuals would more than likely not get the tax relief seen over the past few years.

"A cautious stance needs to be adopted with regards to the extension of credit, given ... sluggish growth and higher company closures," Doig said.

The rand's 20 percent appreciation against the US dollar since the beginning of the year after its 40 percent gain last year has cut the earnings of companies with offshore earnings and put thousands of jobs at risk.

Domestic growth would be no more than 2.75 percent, he said, because of a slump in mining and manufacturing and slow growth in Europe, which accounts for 36 percent of South Africa's trade.  

A Reuters survey of 14 economists pegged gross domestic product growth this year at 1.95 percent, which was expected to expand to 3 percent next year.

Cash sales, however, had been increasing from 76.7 percent in 2001 to 77.6 percent last year and 78.7 percent in the first seven months of this year.

"This is a welcome trend as we go forward into November/ December, the period that traditionally constitutes 21.5 percent of annual sales."

Household debt as a percentage of disposable income was 53.5 percent in the second quarter of this year as more people invested in property.

Doig pointed out that liquidations were likely to continue at record levels until the first quarter of next year. Company liquidations hit a two-year high in September of 466, 38.6 percent up from last year.

Default judgments of R705 million in August - more than 15 percent higher than the previous 12 months, was "ample evidence that the status of financial health is not all that it is made out to be", Doig cautioned.