That would be worrying news as consumer spending is the main engine of economic growth, accounting for about 60% of SA's gross domestic product.
Forecasts vary as the retail sales data from Statistics SA are volatile, but analysts agree that the overall pace of expansion moderated from 6.4% year on year during May.
"We're forecasting a lower growth rate of 3%," says Absa Capital economist Ilka van Zyl. "One of the main reasons is lower consumer confidence during the second quarter of this year, which is likely to have come through in June."
Consumer confidence dived to its lowest level since early 2008 in the second quarter of this year, according to a survey from the Bureau for Economic Research (BER) and First National Bank.
A separate survey from the BER and Rand Merchant Bank showed that confidence in the retail sector also fell in the second quarter, hitting its lowest level in two years.
The South African Reserve Bank drew attention to both surveys when it unexpectedly cut its key repo rate by half a percentage point to 5% last month.
The Bank also noted that growth in consumption spending by households moderated to 3.1% in the first quarter of this year, after growing by 5% during last year.
Its data shows that growth in the disposable income of households, which closely tracks consumption, slowed to 3.2% in the first quarter of this year from 4.7% in the previous quarter.
"I'm not optimistic about retail sales," says Meganomics economist Colen Barrow.
"It's a sector that should show some response to the lower interest rate environment but this is flawed by a weak labour market and multiyear lows in confidence."
He was referring to news last week that business confidence fell to its lowest level in 12 years last month, reflecting poor prospects for economic growth this year.
Unemployment dipped in the second quarter, but there were heavy job losses in the trade and manufacturing sectors, which respectively shed 91,000 and 44,000 jobs. "Broadly speaking things are fairly muted on the consumer demand side," says Vunani Securities economist Johan Rossouw.
KADD Capital economist Elize Kruger has a somewhat more upbeat view on the retail sales figures - she expects growth to have slowed to 5.4% year on year during June. "Though consumer confidence levels have been deteriorating in recent months, consumers still get the benefit from a low interest rate and inflation environment. Wage increases so far have been in excess of inflation."
Consumer inflation dipped to 5.5% in June from 5.7% in May.
The retail sales figures will be the final piece of the puzzle which economists need to estimate how the economy performed during the second quarter. It notched up growth of just 2.7% during the first quarter, seasonally adjusted and annualised.
Source: Business Day
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