Price increases, job losses and low growth in the retail sector together with rising bad debts on credit portfolios are causing consumers to spend less.
Bad debts are on the increase and prices will continue to rise, says PIC Solutions, a specialist credit risk solutions company in the EMEA region.
It says that although stores are stocking up for Christmas, consumers will not be spending as much as in previous years.
It predicts that South Africa will continue to witness the effects of recession into the second quarter of 2010 before there are any signs of economic growth.
They note that the National Credit Regulator expects 150 000 consumers to be under debt review by Christmas.
One hundred thousand consumers owe R20-billion overall, with R12-billion of that resulting from mortgages.
Bad debts are magnified in a low credit growth environment and will only be realised over time, so this trend is set to continue while the bad debts roll through.
Although South Africa is heading for gradual economic recovery, there will be a lag before credit portfolios and bad debts have caught up.
The retail sector might be especially hard hit over the Christmas period after a difficult year to date. In the first eight months of 2009 the retail industry saw a recorded growth in nominal sales and real sales of 6.2% and -4.8% respectively.
Simon Trupp, Director of PIC Solutions, says that growth in retail credit is proving difficult due to limited credit offers and customer uptake.
The annual performance of retailers is largely determined by Christmas trading in the second half of the year, so a fall in consumer spending will badly affect the industry for this financial year.
PIC Solutions warns of several other factors contributing towards low household expenditure and therefore a drop in retail sales over the Christmas season.
Consumers continue to have negative confidence in the economy.
Many consumers are aware that due to the recession, annual bonuses may be held back. This concern will also cause a fall in retail sales and customers will be looking to purchase on credit.
Going into 2010 there are likely to be further problems for consumers if the proposed Eskom 45% rate hikes are given the go-ahead by the National Energy Regulator of SA (Nersa) early next year.
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