Robust retail sales to lift GDP

By Jason Muscat, FNB Senior Economic Analyst.

December retail trade sales far exceeded our expectations, rising 5.3% y/y, but down -2.6% m/m on a seasonally adjusted basis. General dealers, clothing and “other retailers each added 1.4 pps (4.2 pps cumulatively), jumping 3.3% y/y, 5.9% and 14.7% respectively. In what may be tentative signs of a recovery in durable goods sales, furniture retailers recorded a 10% y/y increase in sales, the eight consecutive month of expansion. Food and beverage sales were up a more modest 0.6% y/y, while pharmaceutical and hardware sales were both up 5.6% y/y.

The December print ended a very robust quarter for the sector, which was 5.6% higher than the same quarter last year, and was up by 2.2% q/q and 3% year-to-date. The data at hand supports our view that full year 2017 GDP could well surprise to the upside, likely coming in at 1.1% y/y against our expectations of 0.9%. We expect the sector’s recovery to continue throughout 2018, spurred on by low inflation, another 25bps interest rate cut in the first half of the year, and decent real wage growth. That said, the prospect of higher taxes, and the growing likelihood of a 1pps increase in the VAT rate, are likely to blunt a more robust recovery.