Third quarter warning for South Africa as price hikes expected to bite consumers

 ·21 Jun 2021

The return of consumer spending has bolstered business confidence in South Africa, but companies are keeping a wary eye on developments in the second half of the year which could knock household finances.

This is according to the latest retail trade report, published by the Bureau for Economic Research (BER) on Monday (21 June), which shows that retailer confidence climbed to a six-year high of 54 in the second quarter of 2021 – up from 37 in the first quarter.

The survey took place from 12-31 May 2021, asking retailers to indicate whether their sales volumes, selling prices and profitability were up, down or the same relative to last year in the same quarter.

Business confidence surged across all trade sectors in the second quarter of 2021. Retailers, wholesalers and new vehicle traders were optimistic about improved trading conditions and higher sales volumes, which in turn boosted profitability and supported confidence.

“While the improvement in sentiment is no doubt encouraging, uncertainties remain with South Africa now in the midst of a third wave of the pandemic,” the BER said.

“Renewed lockdown restrictions to curb the spread of the virus will certainly harm the sector.”

A knock expected for consumers

Looking ahead into the third quarter, the overall retail sector is optimistic about business conditions and sales volumes, the BER said.

However, several potential issues were flagged which could impact consumer household finances:

  • The expiration of the social grant top-ups and the SRD grant, which aggregated to about R20 billion in extra income per quarter for low-income consumers;
  • The end of the TERS programme;
  • Hikes in fuel and electricity prices;
  • Rising food inflation;
  • Below-inflation adjustments to social grants.

These issues will continue to put the household finances of low-income consumers under significant pressure.  This will in turn hurt the sales volumes and bottom line of non-durable goods retailers, the BER said.

“With South Africa now in the midst of a third wave of the pandemic, other risks also lie ahead for the entire trade sector. The very slow vaccine rollout could see renewed lockdown restrictions to curb the spread of the virus, harming the sector.

“The weak labour market, as well as the power supply crisis at Eskom, also do not bode well for the trade sector in general.”

Although it is important to emphasise these considerable risks to the outlook for the third quarter, the BER’s latest results were nevertheless remarkably positive and point to stronger than initially anticipated growth in the trade sector during the second quarter of 2021.

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