South African business confidence in the retail sector declined in the first quarter of 2007 but remained surprisingly robust despite higher interest rates, a new survey showed on Monday.
The Bureau for Economic Research (BER) retail confidence index fell to 87 index points from a record high 91 previously, indicating an overwhelming number of retailers remain satisfied with business conditions.
The slowdown was less marked than expected given the two percentage point rise in interest rates during the second half of 2006 and recent indications that retail sales may be beginning to moderate.
The survey found sales volumes were expected to stabilise in the second quarter, meaning a further slowdown was not expected.
”This is certainly surprising as it may indicate that the lagged impact of last year’s 200 basis point interest rate hikes is unlikely to weigh meaningfully on sales during the first half of 2007,” BER economist Hugo Pienaar said in a statement.
South African retail sales growth eased to 7,2% year-on-year in December from 12% the month before, leaving growth at a robust 9,7% for the full year.
A three-year spending boom has helped drive economic growth but it has also added to inflationary pressures and remains a concern for the central bank, although it opted to keep rates unchanged at its February meeting.
Pienaar said first quarter survey coincided with the February rates decision, a growth-friendly budget for 2006 and 2007 and a surge in domestic maize prices.
The findings showed growth in sales of semi-durable goods — such as clothing and footwear — posted the biggest slowdown, while confidence in the durable goods sector ticked higher to 89 from 87.
”Like the respondents to the retail survey, the BER continues to be surprised by the strength and resilience of consumer demand in the wake of higher interest rates,” Pienaar said. – Reuters