Johannesburg — RETAIL sales dived a record 4,5% in February, much more steeply than expected and backing the case for a hefty interest rate cut at the Reserve Bank's policy meeting at the end of this month.
The contraction in the economy's third-biggest sector was the largest since existing records began eight years ago, data from Statistics SA showed yesterday.
This reinforces mounting evidence that SA has entered its first recession in 17 years. Many analysts warn that there is little hope of a recovery before the end of this year.
Standard Bank economist Johan Botha said: "We are of the opinion that data for the first quarter of 2009 will confirm that the economy has moved into a recession, placing households under huge strain. We do not anticipate that a major turnaround in retail sales is on the cards."
Retail sales this January were 1,2% higher than those of January last year, revised down from 1,7% initially.
That increase stems partly from the effect of power cuts in January last year, which reduced activity across much of the economy.
Consensus forecasts from Bloomberg had forecast a 0,6% annual rise in February for retail sales, which account for 14% of the economy.
"Today's number provides further evidence that consumers continue to struggle in an environment of tight credit extension laced with high debt to disposable income levels," said Absa Capital economist Jeffry Schultz.
"Given the grim state of the domestic economy along with continued expectation of moderating inflation, the Bank is likely to remain in a cutting mood at the April 29-30 monetary policy committee meeting."
Schultz and most other analysts expect the Bank to lower its key repo rate another full percentage point to 8,5% at the end of this month, after reducing it 2,5 percentage points since December.
Fear of job losses has added to the pressure of high debt costs on consumers, and curbed their spending, which drives 60% of the economy.
Reserve Bank figures show consumer spending contracted for two quarters running in the second half of last year, as did the disposable income of households.
A trade conditions survey from the South African Chamber of Commerce and Industry released yesterday showed that business activity continued to deteriorate last month, as did expectations for the coming six months.
Stats SA said its retail sales figures were revised to take account of a broader survey of retailers and revamped consumer price data, from January last year.
The reference year for constant prices was also shifted to last year from 2000.
This pushed growth rates for retail sales upward, but the long-term trend remained broadly the same, Stats SA said.
However, the revisions meant that retail sales grew a marginal 0,1% over the whole of last year, instead of contracting more than 2% as calculated previously. That is well below growth of 6,5% in 2007 and 11,9% in 2006.
Retailers of hardware, paint and glass were hit hardest in February, with sales plunging 21,5% compared with the those of the previous February. Household furniture, appliances and other equipment dived 7,3% while general dealers -- accounting for 40% of the sector -- saw their sales fall 1,2%.
" We expect to see only a gradual recovery in retail sales largely on the back of the additional purchasing power released by lower debt servicing costs," Thebe Securities economist Monale Ratsoma said.
The introduction of tougher credit rules in June 2007, along with poor business confidence, would keep a lid on credit extension, Ratsoma said.
Private sector credit growth has slowed to successive four-year lows in the past couple of months.
Stanlib economist Kevin Lings said that consumers had reduced the outstanding balance on their credit cards in four of the past five months.
As a result, growth in credit card debt alone slowed to an annual rate of 1% in February, down from 44% in mid-2007.
"There is no doubt that SA consumers are under pressure and deleveraging, either willingly or because the banks have significantly tightened up their lending criteria," he said.
