Confidence levels of retailers declined substantially during the first quarter of this year, plummeting to the lowest level in five years.
Retail sales are expected to contract to such an extent that the Bureau for Economic Research has made a significant downward revision to its forecast for overall consumer spending.
Linette Ellis, a senior economist at the bureau, said they now expect consumer spending to increase by between 2percent and 3percent this year, compared with an estimated 7percent last year and 8percent in 2006.
Ellis said "Depending on when inflation and interest rates start to retreat and the potential fallout from South Africa's current electricity shortage, consumer spending could start to recover in 2009."
Business confidence levels of retailers sunk to 52 index points during the first quarter of this year after having fallen from a record high of 91 index points during the second quarter of this year to 71 index points in the fourth quarter of this year.
Ellis said the retail sector could already be in a recession. The definition of a recession is two successive quarters of negative growth.
Based on Stats SA's results from the end of last year which showed a declining trend combined with the most recent statistics from the bureau the retail sector looks to be in a recession.