Research undertaken for the South African Council of Shopping Centres (SACSC) by Christo Luüs of Ecoquant, shows a cautiously confident outlook with positive signs for the economy and improving trading conditions in 2017. This cautiously confident outlook is supported by the Reserve Bank’s business cycle indicator, which points to some improvement lined up for 2017.
According to Amanda Stops, CEO of SACSC, the purpose of the research is to gather data from a wide range of sources to highlight the direction of the overall economy and how this impacts retail and consumers and to guide and inform the SACSC members.
Among the positive influences, the SACSC Economic Brief lists the respite in the violent and destructive student protests, an unchanged credit risk ratings by Fitch and Moody’s, albeit with a negative outlook from the former and political developments, which could lead to an improvement, over time, for the prospects of a reduction in corruption and ‘state capture’ activities.
Even so, it cautions that formidable obstacles to generating sustained high levels of economic growth remain the declining levels of fixed capital formation together with a growing public sector and very little attention to the plight of small businesses, which add up to negative prospects for improved employment conditions.
The research brief quotes the latest EY/BER Retail Survey, which shows that conditions in the retail sector improved during the third quarter of 2016 after a sharp deterioration in the second quarter. This survey revealed that 43% of retailers reported being satisfied with prevailing conditions that were up significantly from 26% in the previous period.
Some of the salient points of the survey include:
- Improvements were most notable in the non-durable goods category signposting that people seem to be switching spend away from the durable and semi-durable sectors.
- Consumers’ real disposable income remains under pressure, while high food price inflation is causing them to reprioritise spending on essentials. As a result, retail sales volume growth has slowed over recent months.
- Weak underlying consumer demand is flagged by weak job creation, slow disposable income growth, slowing credit extension and low consumer confidence levels. As retail sales inflation continues to rise, consumers’ purchasing power will be eroded.
- Growth in sales of discretionary items is expected to show further weakness in the early months of 2017, while growth in the sales of essential items is likely to slow. Durable goods consumption may show somewhat stronger growth off a very low base.
- The SACSC research indicates that real household consumption expenditure growth in 2017 is forecast to amount to 1.7% compared with the estimated growth of 1.2%, which will be recorded in 2016.
- Semi-durable goods – mostly clothing and footwear – could experience an increase of only some 1.0% year-on-year in real terms in 2017, while durable goods expenditure – including furniture, appliances and private vehicles – could rise by around 1.5%. Growth of spend on non-durables is expected to amount to 0.5% year-on-year.
Reference: Franchise Association of South Africa