Moody’s scheduled to give ratings update

The main economic event this week will be a potential update from Moody’s on SA’s sovereign credit ratings, while the latest employment, manufacturing and mining data are expected to confirm the weak state of the country’s economy.

Moody’s is scheduled to make an announcement on Friday, but is permitted by the regulations to let the date pass unremarked.

While SA’s economic and political climate remains uncertain, most economists would be surprised if Moody’s moves again so soon, having downgraded SA’s local and foreign ratings to Baa3, the cusp of junk, in June.

BNP Paribas SA economist Jeff Schultz does not believe SA’s situation has deteriorated so dramatically that Moody’s will cut the ratings to junk.

Investec economist Kamilla Kaplan expects Moody’s to assess the medium-term budget policy statement in October first, and possibly also the economic policy implications of the ANC elective conference in December, before taking any further ratings actions. “Although our base case scenario is for no further credit rating downgrades this year, the risk [of more downgrades] remains high over the medium term if economic growth doesn’t revive, particularly in view of the associated fiscal risks.”

At the end of July, Moody’s lead sovereign analyst for SA, Zuzana Brixiova, warned that in the absence of decisive structural reforms, SA’s longterm potential growth and fiscal outlook would remain subdued.

She also registered concern about growing political pressure on the Reserve Bank’s independence and mandate, noting the ANC’s July policy conference resolution that the Bank be nationalised.

“Though state ownership of a central bank is not unusual, the timing … of the proposal points to growing political pressure for less independent monetary policy, a key pillar in our assessment of SA’s institutional strength,” she said. “It also sends another unclear signal about policy direction.”

The Quarterly Labour Force Survey for the second quarter will be published by Statistics SA on Monday.

Economists are not expecting it to reveal any significant gains in employment. “If anything, labour shedding may have increased,” said First National Bank senior economist Mamello Matikinca.

June mining and manufacturing production and sales data will be released on Thursday, giving a better indication of how the economy performed in the second quarter following an overall contraction in GDP in the first three months of 2017.

Investec’s calculations show that even if June’s month-onmonth seasonally adjusted outcomes are zero, or even moderately negative, the mining and manufacturing sectors will still manage to avoid a quarterly contraction.

This is notwithstanding the trend in the Absa purchasing managers’ index, which suggests the manufacturing sector is headed for a crisis.