Load shedding boost for business in South Africa

Retail trade sales surprised on the upside in South Africa, with decreased load shedding benefitting retailers.

According to Stats SA, measured in real terms, retail trade sales increased by 0.8% year-on-year in May 2024.

This was an improvement from the 0.7% in April and ahead of the Bloomberg consensus of a 0.6% increase.

The largest positive contributors to this increase were:

• general dealers (1.7% and contributing 0.7 of a percentage point);

• retailers in food, beverages and tobacco in specialised stores (4.4% and contributing 0.3 of a percentage point); and

• retailers in household furniture, appliances and equipment (6.2% and contributing 0.3 of a percentage point).       

Retailers in textiles, clothing, footwear and leather goods were the only negative contributors (-4.5% and contributing -0.9 of a percentage point).

Seasonally adjusted retail trade sales decreased by 0.7% in May 2024 compared with April 2024. This followed month-on-month changes of 0.5% in April 2024 and 1.0% in March 2024.

For the three months ending May 2024, retail trade sales increased by 1.3% compared with the three months ending May 2023. General dealers contributed the largest positive increase (2.9% and 1.2 percentage points).

Moreover, seasonally adjusted retail trade sales increased by 0.6% in the three months ended May 2024 compared with the prior three months. The largest contributor to the increase was general dealers (0,4% and contributing 0,2 of a percentage point).

Investec Economist Lara Hodes said that the hardware, paint, and glass category grew by 0.9% in May after consistently underperforming over the last two years.

According to the BER’s retail survey, in contrast to sentiment amongst retailers in the semi-durable goods category, confidence amongst durable goods retailers (hardware and furniture) improved.

“Confidence among hardware retailers more than tripled from 15% to 47%. For the first time in two years, it is close to the long-term average, as is the profitability index for this category of retailers,” said the BER survey.

Hodes said that an improvement in electricity supply helped retailers, with Eskom not implementing load shedding for over 100 days—the first time since 2021.  

Inflation is set to continue downwards, which will support consumers’ real incomes.

BankservAfrica said that salaries adjusted for inflation tracked slightly higher at R14,015 in May – up 4.5% from a year prior.

“We are anticipating a start to the interest rate cutting cycle in November or Q1.25—but await further guidance at today’s MPC meeting—which will ease the plight of the indebted and further support HCE growth,” said Hodes.

There are still question marks over when interest rates will be cut, with economists and analysts divided.

Bank of America only expects the first cut in January 2025, while the Bureau for Economic Research and Nedbank expect the first cut in September.

That said, Goldman Sachs Group Inc. and Deutsche Bank AG are among three of 23 participants in a Bloomberg survey that predict that the monetary policy committee will reduce interest rates by 25 basis points later today

A separate Bloomberg survey also found that the majority of economists expect the MPC to be split on the decision, with one member potentially pushing for a 25 basis-point cut while the other five hold.

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