Bad news about South Africa’s economy and employment

Siphamandla Mkhwanazi

FNB senior economist Siphamandla Mkhwanazi anticipates the sluggish economy to further hinder employment recovery in 2023.

Mkhwanazi was commenting on the latest South African retail sales volumes, which closed 2022 on a sour note.

Sales declined by 0.6% year-on-year in December from a relatively muted 0.8% increase in November.

On a month-on-month basis, seasonally adjusted volumes declined by 0.6% in December from a 1.0% increase previously.

Still, retail sales increased by a marginal 0.3% quarter-on-quarter, suggesting a meagre contribution to the 4Q22 GDP growth.

“Together with weak mining and manufacturing output, this data supports our view that GDP performed poorly in 4Q22,” Mkhwanazi said. “This is primarily due to significant load-shedding and elevated living costs for consumers.”

Retail sales declined by 0.6% y/y in December.

The retail sales decline was broad-based, with six out of seven categories recording a slide in annual volume sales.

Pharmaceuticals recorded the deepest decline at -5.2% year-on-year, followed by hardware material and household furniture at -3.9% and -2.2%, respectively.

Clothing and footwear held the fort in December, increasing by 2.7% year-on-year.

In total, sales volumes increased by 1.7% in 2022 compared to 2021, mainly driven by increased spending on Clothing and Footwear, in line with higher levels of mobility.

Hardware materials were the worst performer, declining by 6.9% in 2022, as consumers spent less on home improvements relative to 2021.

“We anticipate that the sluggish economic environment will further hinder the employment recovery in 2023,” said Mkhwanazi.

Wage growth is also likely to be muted, in part due to the impact of load-shedding on corporate margins.

Growth in non-labour income, which has been driving the post-lockdown income recovery, is also expected to moderate.

It is primarily due to base effects, weaker corporate earnings growth, and subsequent dividend payouts.

Another downside is the depletion of household financial buffers, including savings, which up until recently had allowed them to weather the economic downturn.

These, combined with elevated inflation, suggest continued financial pressure on households.

On the other hand, the credit market remains active, with consumers accumulating consumption credit at a faster pace, which could provide auxiliary support to household consumption.

However, this may also increase the risk of credit defaults due to slower income growth and the accumulation of more expensive lines of credit. It can result in strained household financial positions down the line.

“As such, we expect household consumption growth to decline to around 1.5% in 2023 from an estimated 2.9% in 2022,” Mkhwanazi said.

“Nevertheless, we note that the 4Q22 FNB/BER consumer confidence results indicate that consumers have a more positive outlook for their finances in the year ahead.”

It highlights the disconnect between macro fundamentals, household behaviour and certain market outcomes.


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