By Jason Muscat, FNB Senior Industry Economist
February’s retail trade sales, which contracted by -1.7% y/y from -2.3% in January, provided further support to our view that the economy has entered a technical recession (two consecutive quarters of contraction).
While the m/m number was up 0.8% on a seasonally adjusted basis, the three month quarterly change reflects a -1.3% contraction, and the year-to-date figure, -2.0%. As with the disappointing mining figures out yesterday, unless there is a significant turnaround in the March print, the retail trade sector will subtract meaningfully from GDP growth in 1Q17.
General dealers, food and beverage as well as pharmaceutical retailers were the only positive contributors, up 0.8% y/y, 5.8% and 3.3% respectively.
Clothing retail sales contracted for the second consecutive month, declining -7.6%, while furniture (-6.5%) and hardware (-5.5%) both registered sharp declines.
The data reflects the changing composition of household spending, away from discretionary items, with disposable income being directed to cover essential household items. It suggests that durables and semi-durables will both shrink markedly in the 1Q17 GDP.
With the hope of rate cuts having all but evaporated since the downgrade, we expect another tough year for consumers despite a moderating inflation profile. On a slightly more positive note, we anticipate the shock to confidence, and ultimately consumption, will lead to further household deleveraging.