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The SA Daily 18 March 2019

Eskom the key risk to growth

  • January retail sales and February CPI inflation are due out this week. Consensus is for sales growth to have recovered somewhat, to 1.4% y/y in January (from a 1.4% y/y contraction in December), partly due to benign SA inflation, including significant relief from fuel cuts in December 2018/January 2019 as well as due to seasonal expenditure over the festive season and at the start of the education calendar in January. Nevertheless, the risks are to the downside amid pervasive power cuts by Eskom, posing a risk not only to sales growth but also the SA economy.
  • Business confidence of retailers and across most sectors is depressed, indicating weaker growth in 1H19. The biggest key risk to retail sales growth and the SA economy is Eskom. Before the 2008 electricity crisis, retail sales grew by double digits. Since then, sales started declining into single digits, even contracting. Sales also suffered the significant jobs cut from the 2008/9 global financial crisis which had started with the US sub-prime crisis and then spread globally, seeing the SA economy contract 1.5% by 2009.
  • The fiscal drag, per the 2019 Budget, also won’t assist sales growth — however, benign SA inflation and the SARB’s accommodative monetary policy should soften the impact on expenditure. Household credit uptake should also boost consumption expendure in 2019. Nevertheless, growth will be weak this year.

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