* Q2 growth at 0.6 pct vs Q1 contraction of 0.6 pct
* Missed 0.9 pct consensus forecast for Q2
* Troubled mining industry drops 9.4 quarter-on-quarter
* Agriculture grows nearly 5 pct after bumper grain harvest
(Adds context about growth forecasts, economist comment)
By Xola Potelwa and Mfuneko Toyana
PRETORIA, Aug 26 South Africa avoided slipping
into recession in the second quarter as solid growth in
agriculture and finance outweighed a plunge in production in the
strike-hit mining sector, data showed on Tuesday.
Africa's most developed economy has been battered by labour
unrest that has disrupted the mining and auto sectors and hurt
business confidence, while a weak rand currency has
increased food and fuel prices, crimping household purchasing
The economy grew 0.6 percent in the second quarter
seasonally adjusted, compared to the previous quarter when it
contracted 0.6 percent, Statistics South Africa said on Tuesday.
While the economy avoided recession, defined as two
consecutive quarters of economic contraction, growth was below a
Reuters poll forecast for 0.9 percent. Adding pressure on the
economy, annual inflation is running above 6 percent and
analysts expect the central bank to raise interest rates again
this year, after lifting them twice already.
"The economy is and will continue to be under pressure,"
said Cheslyn Francis, a portfolio manager at Afrifocus
Securities. "Production will have to pick up. Manufacturing has
to pick up."
Output in the mining and quarrying industry plunged 9.4
percent quarter-on-quarter in April-June, after being hit by a
five-month strike in the platinum industry, the longest in South
Clouding the outlook, third-quarter economic output is
likely to be hurt by the impact of an engineering strike that
ended last month, said Peter Attard Montalto, an emerging
markets analyst at Nomura International.
"There is more bad news to come and we should remember the
level of growth seen today is exceptionally low and totally
insufficient to solve South Africa's deep developmental and jobs
problems," he said in a note to clients.
President Jacob Zuma's ruling African National Congress
(ANC), which comfortably won an election in May, is struggling
to deliver convincing economic growth to lift millions out of
poverty and reduce unemployment of 25 percent.
The ANC is also keen to soothe investor concerns over
frequent labour disputes.
On a year-on-year basis, the economy grew by 1 percent in
April-June, lagging analysts' forecasts for 1.2 percent and
compared with growth of 1.6 percent in the previous three
COMPANIES SCALING BACK
"What you're going to see now is another round of downward
revisions to South Africa's growth estimates," said Kevin Lings,
chief economist at Stanlib.
At the start of 2014 analysts forecast economic growth of
2.8 percent this year, but by this month had downgraded
forecasts to 1.7 percent growth, according to a Reuters poll.
Manufacturing production, the economy's largest sector after
services, fell by 2.1 percent from the first quarter.
Agricultural production, however, rose nearly 5 percent,
buoyed by bumper grain harvests, a trend that should also help
contain food prices and inflation.
Finance and real estate expanded by 1.5 percent, the data
The sluggish growth has prompted companies to scale back on
big projects, particularly in mining and manufacturing.
"In terms of civil engineering, mining activities and large
infrastructure projects, there's not much going on," said Kobus
Verster, the chief executive of Aveng Ltd.
Aveng, South Africa's second-largest building and
engineering firm by market value, reported a 10 percent drop in
full-year earnings on Tuesday, citing weakness in the
manufacturing, steel and mining industries, as well as the
impact of labour unrest.
"In terms of our of manufacturing, especially our steel
environment, there's very limited demand and almost no growth,"
The rand showed little reaction to the economic
data, and was at 10.6950 to the dollar at 1124 GMT, slightly
firmer from its overnight close of 10.7125.
Bonds were also little changed, with the yield on the 2015
debt at 6.54 percent, while the longer-dated 2026 bond
was unmoved at 8.175 percent.
(Additional reporting by Ed Stoddard; Writing by David Dolan;
Editing by Pascal Fletcher/Raissa Kasolowsky/Susan Fenton)