18 May 2017
Retail sales update: Retail sales contract in Q1.17
The lift of 0.8% y/y in retail sales in March exceeded market expectations of a 1.0% y/y contraction. The March outcome was also an improvement on the 1.6% y/y contraction in February.
Low statistical base factors likely influenced the outcome as the Easter holidays occurred in the month of March in 2016 but fell in April this year.
On a quarterly basis, retail sales declined by 1.0% y/y. Weighing on overall retail sales in Q1.17 were contractions in sales at textiles and clothing dealers; general dealers and all ‘other’ retailers, with the combined negative contribution to headline retail sales at 2.0%.
Seasonally adjusted sales fell by 1.1% q/q. This measure is used to calculate the retail sector’s contribution to GDP and the Q1.17 outcome therefore suggests that the sector will detract from GDP. We estimate the contribution at approximately -0.3%.
Contractions in the retail trade and manufacturing sectors will have weighed on Q1.17 GDP but the economy is likely to have avoided a technical recession owing to stronger activity in the mining sector. Specifically, we estimate GDP in the region of 0.8% quarter on quarter seasonally adjusted annualised (qqsaa) versus -0.3% qqsaa in Q4.16.
Looking ahead, retail sector activity is likely to remain muted this year, in line with modest growth in household consumption expenditure that we project at 1.2% y/y versus 0.8% y/y in 2016.
Although CPI inflation is expected to be more benign in 2017, the favourable effect on disposable income is likely to be countered by tighter fiscal policy. Moreover, elevated existing levels of indebtedness, weak rates of credit extension to household and depressed consumer confidence are expected to restrain consumer spending.