By Siphamandla Mkhwanazi
Retail sales growth slows in February
Retail sales growth eased sharply to 1.6% y/y in February, down from 4.4% in January (revised from 4.2%), and well below market expectations of a 4.8% expansion. On a month-on-month basis, sales volumes declined by 1.0%, reversing the 0.9% gain in the previous month. As a result, volume sales over the past three months are only 0.5% higher compared to the preceding three months. Importantly, this data largely predates the war in the Middle East, which has since heightened uncertainty and unsettled oil markets, developments that are likely to dampen sentiment and weigh on consumer activity going forward.
Where consumers are spending
Spending activity increased in five of the seven retail categories; however, pressure on specialist food and beverage retailers persisted, with sales declining by 5.0% y/y (from -6.1%), while weakness extended to general dealers, where volumes contracted by 0.9% following growth of 2.4% previously. Each category detracted around 0.4-percentage points (ppts) from headline retail sales growth.
At the other end of the spectrum, "Other" retailers recorded robust growth of 9.4% y/y, albeit slightly slower than the 11.1% expansion in January, contributing 1.0ppt to the headline. Continued e-commerce activity and Valentine's Day-related spending likely supported volumes. Clothing and footwear also provided some support, although growth moderated to 3.9% from 9.7% in the prior month. Pharmaceuticals and cosmetics were the only category to record an acceleration, rising to 6.0% from 4.8% previously. Furniture retailers continued to post strong growth of 9.3%, although they also decelerated from 10.7% in January. Hardware and building material volumes remained broadly flat at 0.1% y/y, extending a five-month trend of slowing momentum.
Outlook
Consumers entered 2026 on a firmer footing, supported by improving purchasing power, stronger balance sheets, and lower borrowing and debt-service costs. This backdrop contributed to improved consumer sentiment, particularly among higher-income households. Looking ahead, however, a less supportive external environment is likely to increasingly weigh on domestic demand. Rising operating costs, via the oil-price channel, alongside heightened uncertainty, could compress margins and dampen investment demand via weaker confidence. In turn, this could feed through to softer employment and earnings outcomes, constraining household spending. Nevertheless, consumers are still expected to drive GDP growth in 2026, albeit at a slower pace than initially anticipated.
