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We take a look at the latest retail trade sales numbers as published by Statistics South Africa and the overall year on year growth rates are gradually tending lower and lower, which is not a good sign for South Africa's economy or the health of its consumer spending
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SA's retail trade sales looking pretty bleak
So there are a few big variables that drives economic growth. The basic and most well known equation to measure economic growth is as follows:
Y=C+I+G+ (X-M)
where
Y= Economic Output/GDP
C= Consumer Spending
I= Investments/Savings
G= Government Spending
X= Exports
M= Imports
Now if any of these variables slow down significantly then economic growth is going to slow down. So lets break the situation down for South Africa right now.
Investments/Savings: South African consumers are over indebted and hardly ever save. Businesses be it local or foreign is not really investing in South Africa now due to political and policy uncertainty (expropriation of land without compensation for example), high tax rates, expensive electricity, tough labour laws, poor infrastructure and support services, high crime rates etc. So the I part of the equation is stagnating
Government spending: Government has made it clear that they are looking to curb their spending that has been ballooning for years, due to corruption, theft, oversized public service, inefficient and ineffective spending, collection of taxes declining due to lower corporate taxes collected due to tough economic climate
Exports - Imports: South African exports and import values are very very similar. So the two basically cancel one another out. In order for this group to contribute positively to South Africa's economic growth our exports need to outstrip our imports. But this is not always the case. In some months we import more than we export and in others the opposite is true. So the (X-M) part is essentially spinning wheels and not providing imputes from growth in South Africa's economy.
So this leaves us with Consumer spending. One of the biggest measures of consumer spending is retail sales figures. The floating bar chart below shows the year on year growth rates in retail trade sales (seasonally adjusted and adjusted for inflation effects). If the bar is light red, the year on year growth rate is lower than the previous months year on year growth rate, if it is dark green, the year on year growth rate is higher than the previous months year on year growth rate. If it is dark red is shows the year on year growth rate of both the current and previous month was negative.
Y=C+I+G+ (X-M)
where
Y= Economic Output/GDP
C= Consumer Spending
I= Investments/Savings
G= Government Spending
X= Exports
M= Imports
Now if any of these variables slow down significantly then economic growth is going to slow down. So lets break the situation down for South Africa right now.
Investments/Savings: South African consumers are over indebted and hardly ever save. Businesses be it local or foreign is not really investing in South Africa now due to political and policy uncertainty (expropriation of land without compensation for example), high tax rates, expensive electricity, tough labour laws, poor infrastructure and support services, high crime rates etc. So the I part of the equation is stagnating
Government spending: Government has made it clear that they are looking to curb their spending that has been ballooning for years, due to corruption, theft, oversized public service, inefficient and ineffective spending, collection of taxes declining due to lower corporate taxes collected due to tough economic climate
Exports - Imports: South African exports and import values are very very similar. So the two basically cancel one another out. In order for this group to contribute positively to South Africa's economic growth our exports need to outstrip our imports. But this is not always the case. In some months we import more than we export and in others the opposite is true. So the (X-M) part is essentially spinning wheels and not providing imputes from growth in South Africa's economy.
So this leaves us with Consumer spending. One of the biggest measures of consumer spending is retail sales figures. The floating bar chart below shows the year on year growth rates in retail trade sales (seasonally adjusted and adjusted for inflation effects). If the bar is light red, the year on year growth rate is lower than the previous months year on year growth rate, if it is dark green, the year on year growth rate is higher than the previous months year on year growth rate. If it is dark red is shows the year on year growth rate of both the current and previous month was negative.
It is clear from the chart that over time the growth rate has started to decline and go lower. Basically the long trend is negative. Now as we mentioned earlier with I, G and (X-M) not going anywhere, South Africa needs C to be growing strongly to stimulate economic growth. And as the floating bar chart above shows this is certainly not the case with retail trade sales, with September 2018 sales only growing by 1.1% compared to September 2017. And this is not a good sign for South Africa's economy as a decline or slow down in consumer spending (which over the last number of years have been the engine of economic growth in South Africa) will inevitably lead to slowdown in South Africa's economic growth