Consumption continued to trump production in South Africa, Absa Investments GM Craig Pheiffer said on Monday.

Real retail sales grew by 3.9% year-on-year (y/y) in January and manufacturing grew 4.1% y/y in February, while mining production fell by 14% y/y, following a series of safety stoppages and strikes at mining groups such as Impala Platinum, AngloGold Ashanti and Harmony.

Industrial activity continued to weaken internationally, but this slowdown was consistent with China’s rather “soft landing”, Pheiffer assured.

Year-on-year growth in steel and electricity output remained below 10% in February compared to the 2011 corresponding month. Automotive production also slumped from just under 20% y/y to about 0%.

However, a significant exception was the computer sector, which grew from roughly10% to about 61% over the period.

On the mining front, industrial production in nonmetal products fell from about 19% y/y in February 2011 to about 16% this year, while ferrous metals smelting and pressing rose from about 7.5% to about 10 %.

While Absa Investments predicted that South Africa’s gross domestic product (GDP) would grow by 2.7% in 2012 and 3.6% in 2013, it warned of a “mild” recession in the European area that could stretch over the next two or three quarters before picking up in the latter part of the year.

Pheiffer said the UK, US and European Union were nearing the end to their monetary policy easing, but that Japan could be going against this trend. “We expect further monetary policy easing in Japan on the back of expectations that inflation will undershoot the Bank of Japan’s 1% inflation goal,” he noted, while adding that Absa Investments expected the yen to depreciate over the next year and provide extra stimulus for the manufacturing and construction sectors.

Developed economies would grow at a faster pace of 1.5% in 2012, compared with 1.3% in 2011, the group forecast, while developing economies would be growing at a slower pace of 5.7%, down from 6.4% last year.

The investment group was predicting a global consumer price inflation rate of 3.2% in 2012 and in 2013, while inflation was expected to reach 6.4% in 2012 in South Africa, before easing back to 5.7% in 2013. “But if energy prices do not continue to rise, we could see a moderation in inflation,” Pheiffer commented.

EQUITY OUTLOOK

Absa Investments investment analyst Chris Gilmour said that although retail sales growth appeared to have run out of steam, optimism should return in light of the expectation of interest rates remaining low.

It was a mixed picture in the retail sector, with some food traders becoming “pricey”.

Gilmour said construction was expected to be in the doldrums for the next two years, but that President Jacob Zuma’s infrastructure-focused State of the Nation address could bring some hope. “We can restructure our view on our outlook for infrastructure in South Africa if we can get tangible evidence that the allocated R800-million will be spent in the near future,” he sated.

In terms of commodities, he added that resources stocks were currently at attractive levels, despite falling commodity prices. “We remain bullish about commodity stocks. The Chinese and Indian economies are still growing rapidly even though not as rapidly as in the past.”

But platinum stocks looked pricey and high-risk. “We are concerned about huge cost inputs and other factors associated with buying platinum mines,” Gilmour said.