South African retail sales should have contracted further in November to –4.1 percent from –2.3 percent despite the Christmas purchases that might have begun in that month, says Investec in a research note on Monday. Notably, they add that the downtrend in demand could persuade the central bank to cut interest rates by more than 50-basis-points in February.

"The slowdown in retail sales growth seems to be more pronounced in retailers dealing in durable and semi-durable goods (vehicles, furniture and clothing), due to the currently high interest rates, tighter credit rules and the marginal growth in real disposable income. We expect this trend in both these components to continue going forward as consumers reduce their credit- driven consumption expenditure," say the economists.

They add that the downward trend in retail sales should be a concern to the policy makers as it shows that the demand side of the economy is deteriorating more rapidly each month. "The November retail sales figure will give a clear indication about Q4.08's growth in household consumption expenditure, which we expect to have continued on the downward trajectory.

The trend in both the demand and production side of the economy might persuade the South African Reserve Bank to reduce the repurchase rate by more than 50-basis-points at the February MPC meeting," say the Investec economists. The data is due on Wednesday at 11.30am and will be keenly monitored by the markets, especially as it provides an indication of the demand slowdown, which impinges on growth prospects.

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