April’s wholesale sale statistics may be the first sign that the recent strong increase in consumer demand is slowing down, according to Efficient Group economist Nico Kelder.
“This certainly does not indicate that consumption demand will fall, just that the rate of increase may be slowing down. It may also indicate that the initial effect of lower interest rates may be wearing out and that an increase in interest rates could have a significant impact on demand,” Kelder said.
Real wholesale trade sales, excluding diamonds, in South Africa plunged by 9,2% in April from March after seasonal adjustment or at an annualised rate of 187,5%, Statistics South Africa (Stats SA) reported on Wednesday.
Before seasonal adjustment, April wholesale trade sales fell by 15,6% at constant 2000 prices from March and were 0,7% lower than April 2003.
“We are not reducing our outlook for economic growth just yet, but if retail sales, which are released later today [Wednesday], are also disappointing, we will have to consider lowering our growth forecast — it should not be a significant adjustment on the aggregate number as yet,” Kelder added.
The decision by the Romanian Central Bank to cut interest rates by 75 basis points on Monday after cutting by 50 basis points in June has put the South African Reserve Bank (SARB) under increasing pressure to cut interest rates.
The last time the SARB cut was in December 2003, even though its inflation target measure of CPIX, which is consumer inflation excluding the effects of mortgage rates, has been below the mid-point of 3% year-on-year (y/y) to 6% y/y for the past three months where data has been released.
SARB Governor Tito Mboweni has warned that in his view there will be no further interest-rate cuts.
Last year the SARB cut by a total of 550 basis points so that the prime rate moved from 17% to 11,5% with cuts in June, August, September, October and December.
Despite this move, the real prime rate of 10,9% using the May consumer inflation rate of 0,6% y/y is more than double the real prime rate of 4% in October 2002, when consumer inflation rate reached a cyclical peak of 13% y/y.
The South African Chamber of Business (Sacob) highlighted the very tight monetary policy in its commentary on the June Business Confidence Index (BCI).
Although the level of more than 120 reached in December 2003 by the BCI was basically maintained in the first six months of 2004, the momentum that was built up during the second half of 2003 seems to have stalled.
This subdued performance and sideways drift are reflected by the y/y economic growth rate of 1,9% in the first quarter of 2004 following on 1,5% growth in the fourth quarter of 2003. This is below the estimated population growth rate of 2% y/y.
South Africa’s real short-term interest rates are the third-highest among the emerging market economies listed by The Economist magazine. In addition, an appreciating rand, although beneficial to the inflationary process in South Africa, might be approaching levels where it could be having serious detrimental real economic consequences, Sacob said. — I-Net Bridge