Mining and manufacturing data for May, released last week, were disappointing and raised the possibility of gross domestic product (GDP) growth for the year falling below an annual 2%.

Mining production came in at 2.7% from a slightly upwardly revised 7.9% in April. In March the sector contracted 4.7%.

First National Bank (FNB) economist Alex Smith said he remained concerned about the outlook for the sector given slower growth in China, subdued commodity prices, load shedding and the potential for further industrial action this year.

Manufacturing contracted by 1.4%, as a result of lower iron and steel production, which dropped 5.8%. There was an annual decline of -4.6% in petroleum and chemicals production.

Mr Smith said iron and steel production was under pressure due to growing concerns about China, although the expansion in vehicle exports, growing 18.1% in May, was encouraging.

"But we also remain concerned about the manufacturing sector, with production down in May for the second consecutive month."

This was reflective of the country’s slow economic growth and electricity constraints, he said.

FNB has forecast GDP growth of 1.9% for this year, but it could be even lower, depending on growth in the retail sector.

The only major domestic release this week will be retail sales for May on Wednesday. The sector will be keenly watched as the retail sector has, together with finance, been the main drivers for GDP growth.

However, the sharp drop in the second quarter FNB/BER consumer confidence survey, which fell to a 14-and-a-half year low, has damped sentiment among retailers with the majority of survey respondents expecting business conditions to deteriorate further in the third quarter.

The Reserve Bank’s quarterly bulletin showed that real disposable income growth lifted to 2.6% from 1.9%, but the boost to purchasing power, from lower petrol and food price inflation, is receding. Consumers are also facing higher electricity prices and rising municipal rates.

Mr Smith said the retail sector had been performing strongly, with sales gains averaging 2.9% for the first four months of this year. "However, we expect that retail sales growth will slow significantly in May from the 3.4% recorded in April." This was because consumer confidence had deteriorated and so had affordability, following a rebound in petrol prices and headline inflation. Credit extension and vehicle sales data further supported the view that consumer spending growth was moderating, he said.

Investec economist Kamilla Kaplan expected retail sales growth to have moderated to 2% in May with prospects for the rest of the year not improving much.

Consumers remained highly indebted and consumer credit conditions remained relatively light, she said. This implied little support to meaningful debt-financed consumer spending activity. Taken together, these considerations could have a suppressing effect on consumer purchases heading into the second half of the year, she said.