Local retailers face tough time

Posted On Thursday, 07 February 2002 03:01 Published by
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Analysts say sluggish economic activity and higher interest rates are set to knock consumer confidence
Analysts say sluggish economic activity and higher interest rates are set to knock consumer confidence

DESPITE robust retail figures for November, the broader trend showed that consumers and retailers struggled towards the end of last year and were in for a tough time in the months ahead, economists said yesterday.

Expected price rises and an unforeseen interest rate hike last month were all expected to dent consumer confidence, knocking hope that consumer demand could emerge as a driver for growth.

An Absa survey of house prices, also released yesterday, projected that prices, in real terms which account for the effect of inflation would increase only 2% this year, as high interest rates depressed the market. This compared to a 6,8% increase between 2000 and 2001.

Moody's Investors Services also joined the fray, saying it would be worried about SA's growth prospects this year if the Reserve Bank followed its decision to raise rates last month with another hike.

Moody's vice president and senior credit officer, Kristin Lindow, said she had wondered whether the Bank had not acted 'too early' when it hiked its rate by 100 basis points in mid-January.

The effect of the rate hike was likely to be most severe on those durable and semidurable products that still showed strong growth in November.

She said that her views were personal as the agency did not prescribe policy to central banks and governments.

'I felt it was not yet clear how rapidly the depreciation (of the rand) was feeding into inflation,' she said. She said previous periods of currency instability had shown limited pass-through to consumer inflation.

Although Statistics SA figures released yesterday showed a 4,4% increase in year-on-year retail sales for November, sales for the three months to November grew only 0,5%. This suggested that the local economy struggled towards the end of the year.

Standard and Poor's market analyst Michael Keenan said the November figures were encouraging amid a global economic slowdown. This was in spite of the rise in sales being driven by pre-emptive buying ahead of expected price increases due to the rand's depreciation.

Keenan said sales growth induced by inflation fears could be seen in sales of durable goods rising 3,9%, while those for semidurable goods increased 9,8%. Absa senior economist Jacques du Toit said that higher rates and the anticipated sluggish economic activity would hit consumer confidence this year.

It would also depress the housing market. 'However, the weakening exchange rate, which makes domestic property an even more attractive purchase for foreigners, will support the residential property market,' said Du Toit. An average home cost South Africans R303700 in 2001, 12,9% higher than in 2000, but of the four major urban areas, only Gauteng's prices accelerated at a faster pace than the national average.

Absa economist John Loos said that November retail sales showed a 'long-term trend' in which growth in demand for nondurable food and grocery-related products was slow.

This trend was reflective of a declining population growth rate as well as ongoing income inequality, Loos said. He said that the demise of diamonds and jewellery, the real sales of which are about 10% down on the mid-1990s levels, suggested a bleak future for sales of durable products with low usage value.

He said the first quarter of this year was expected to bring about a 'significant' deterioration in real retail sales growth.

This was because the economic cycle was still believed to be on a downward trend, and this would continue during the first half of the year, he said.

The Absa residential property market survey showed that, in the fourth quarter of last year, house prices were 6,4% higher than the prices in the last quarter of 2000.

Publisher: Business Day
Source: Business Day

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