January 13, 2005

By Dirk De Vynck

Cape Town - Data released by Statistics SA yesterday showed that the upward trend in retail trade sales continued unabated in October last year, reaching the highest year-on-year growth rate in almost six years.

According to Statistics SA, retail sales showed annual nominal growth of 16.7 percent to R27.59 billion in October.

In real terms (excluding inflation), this is equivalent to sales of R21.59 billion, up 12.8 percent year on year.

These are the highest growth rates since 1999, which is as far back as Stats SA's growth figures on retail trade sales stretch.

The latest figures bring the total sales for the first 10 months of 2004 to R252 billion, 13.2 percent higher than the R223 billion sold in the corresponding period in 2003.

Johan Rossouw, chief economist and strategist of Vector Securities and Derivatives, said this indicated that the demand side of the economy was healthy and would continue this year.

"I think the strong growth performance can continue for the first six months of this year, although it is doubtful that the pace will continue accelerating.

"Contrary to what most other economists are saying, I expect an interest rate increase by mid-year, driven by continued strong consumer demand and further growth in credit extension."

An interest rate increase would stem consumer demand, although a lag of between 12 and 18 months implied that the impact on retail sales would not be immediate, he said.

Rossouw predicted real growth of about 10 percent for the first half of this year.

John Loos, a senior economist at Absa, said: "I had forecast the growth in retail sales to start decelerating from the fourth quarter.
"But given Stats SA's latest data, I foresee the slowdown kicking in from January this year."

His assumptions were based on the limited scope for further interest rate cuts, with a possible 0.5 percentage point drop still expected for next month and possibly a further 0.5 percentage point later in the year.