Retail sales expected to grow modestly in 2026 after disappointing December activity

Shopping activity in South Africa is expected to improve this year, supported by lower inflation and a more accommodative interest rate environment, after retail performance softened during the festive season.

Data released by Statistics South Africa (StatsSA) on Wednesday showed that retail sales rose by 2.6% year-on-year in December 2025, following an upwardly revised 3.6% increase in November.

While growth remained positive, the December reading marked the slowest expansion since August, highlighting continued pressure on consumers.

The moderation was most visible in key categories. Sales of pharmaceuticals, medical goods, cosmetics and toiletries slowed sharply to 1.4% from 9.8% in November.

Textiles, clothing, footwear and leather goods barely grew, rising just 0.1% compared with 3% previously. Spending on food, beverages and tobacco contracted by 5.6%, reversing November’s modest 0.2% increase.

In contrast, household furniture, appliances and equipment recorded stronger momentum, with sales climbing 11.5%, up from 8.1% in November.

Raquel Floris, deputy director for distributive trade statistics at StatsSA, noted that six of the seven retail groups delivered stronger results in December.

Floris said that general dealers, which account for more than 40% of the retail basket, were the primary drivers of quarterly growth.

The December publication concludes the results for the fourth quarter of 2025 as well as for the calendar year.

“For the calendar year retail trade sales grew by 3.7% in 2025 compared with 2024. Six of the seven retail groups recorded a positive year, with general dealers, and textiles and clothing the most significant positive contributors. Retailers in food and beverages experienced a decline, however, contracting by 1.5%.” 

Investec economist Lara Hodes said retailers have gained from the more favourable trading environment, with sentiment amongst participants in the latest retail survey jumping notably in the fourth quarter.

“Specifically, consumers have benefitted from lower inflation and interest rates, with further cuts expected this year,” Hodes said.

“Moreover, the official unemployment rate has eased over the last two quarters, while consumer confidence in general is less negative. This bodes well for household consumption expenditure going forward with a 2.1% year-on-year lift forecast for 2026.” 

Seasonally adjusted figures, however, pointed to some weakness. Retail trade sales declined by 0.4% month-on-month in December, following a 0.6% increase in November.

For the fourth quarter, sales edged up by 0.8% compared with the third quarter. Five of the seven retail groups expanded in the fourth quarter, with general dealers the largest positive contributor.

Economists remain cautiously optimistic about the outlook.

Siphamandla Mkhwanazi, senior economist at FNB, said retail sales are likely to maintain positive momentum, supported by healthier household balance sheets, improved purchasing power, and a monetary policy stance expected to turn more neutral.

"In addition, multi-year wage agreements across key sectors should provide a meaningful lift to disposable income, supporting both discretionary and essential spending," Mkhwanazi said.

"As a result, retail activity is likely to contribute positively to the overall economic performance into 2026." 

Meanwhile, Standard Bank economist Shireen Darmalingam observed that December sales volumes undershot expectations.

She noted that although consumer financial health indicators have improved, including a rising share of credit-active consumers without overdue debt, conditions remain uneven across income groups.

Darmalingam added that the factors supporting consumption growth are shifting.

Last year, robust real household consumption expenditure growth was underpinned by a surge in the Government Wage Bill and a sharp disinflationary impulse, both of which are expected to be less supportive this year," she said.

"By contrast, the recent rally in equity markets should generate a meaningful positive wealth effect, with the full impact of the current interest rate-cutting cycle likely to materialise this year. However, the benefits of the wealth effect are expected to be concentrated among high-income earners. We still see scope for monetary easing."

Standard Bank expects further monetary easing, pencilling in potential rate cuts at the March, July and November Monetary Policy Committee meetings.

BUSINESS REPORT