Storm before the calm
Cape Town - Retailers are pulling out all the glittery stops for festive season buying in anticipation of big spending by the country's consumers, who seem more than happy to lap up the offerings, according to two surveys.
The surveys - one by Stellenbosch University's Bureau of Economic Research (BER) on behalf of Ernst & Young (sampling 626 retailers' expectations), the other by Deloitte (looking into consumers' spending over the festive season) - examine different sides of the same retail coin, and come to the same conclusion: despite three 50 basis-point rate increases in 2006 (and the prospect of another in the first week of December), South Africans will continue spending.
Deloitte found that 65% of South Africans plan on spending more this Christmas; this is likely to take retail sales levels to new heights, after a 9.6% increase in 2004, 6.7% increase in 2005.
Given this, the BER's retailers' confidence index for the fourth quarter of 2006 reached a new high in its 20-year history, with 91% of respondents saying the prevailing conditions for business were satisfactory.
This corresponds with positive trading updates from many retailers (Massmart most recently saying sales were up 16.7% in the five months to November, adding that Christmas would be "exceptional").
'May seem drastic'
Growth should slow down at some point, given the high base off which it has come, and 2007 is the year the BER has pencilled in for this. It forecasts that year-on-year growth in real final household consumption spending will be 3.6%, half the rate of growth of 6.6% in 2006.
Most notable is the slowdown in consumption of interest-rate sensitive durable goods (like vehicles and furniture); after growing 51.9% in 2004, 18% in 2005 and 13.5% in 2006, says the BER, the expected growth for 2007 is a mere 1.4%, followed by a 3.8% increase in 2008.
Growth in semi-durable goods such as clothing and footwear is also expected to decelerate from double- into single-digit figures.
"This may seem drastic," says BER economist Hugo Pienaar, "and the real spending figures do tend to come in above expectations, but we are definitely headed for a more challenging environment."
Dim prospects of further personal income-tax relief, soaring debt-to-income levels (around 70% in 2005 and 2006), negative growth in savings and surging credit demand (especially in the lead-up to the introduction of the National Credit Act in June 2007) all act as dampening factors.
News was from www.news24.co.za
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