The seasonally adjusted measure, which is used to determine GDP, signals that the sector will make a positive contribution to Q2.17 GDP, after having detracted from Q1.17 GDP. Specifically, on a three month rolling seasonally adjusted basis retail sales rose 2.1% in June versus the Q1.17 decline of 0.9%.
The disaggregation of the June retail sales update showed that the largest positive combined contribution, of 2.0%, to the headline outcome stemmed from food and general dealer retailers which registered sales growth of 12.4% y/y and 2.5% y/y respectively (see figure 3).
On a year to date (January to June) basis, food and pharmaceutical sales have outperformed sales in general dealers as well as sales in the semi-durable goods (clothing) and durable goods (furniture and hardware) categories (see figure 2).
This would suggest that consumers are diverting spending away from the more discretionary (non-essential) items. Consumers’ ability to spend has been affected by declining real income growth, weak credit extension and high unemployment. Diminished willingness to spend is reflected in the persistently depressed consumer confidence.
Although the deceleration in CPI inflation and lower interest rates should provide some relief to households, tax increases and the renewed tightening in credit criteria will likely curb consumer spending.
Moreover, in view of the recent interest rate reduction, and possibility for a further cut, households could rather take advantage of the lower interest rate environment to reduce levels of indebtedness. This has already been taking place as evidenced by the decline in the household debt to disposable income ratio, to 73.2% in Q1.17 from levels closer to 80% in 2013. Recent data from the National Credit Regulator further shows a decline of 9.49% q/q and by 4.65% y/y in the number of credit applications in Q1.17.
Overall, we project household consumption expenditure to remain subdued in 2017 at 1.0% y/y compared to 0.8% growth in 2016.