Moody’s to release new ratings review

In another quiet week on the data front, with only the August manufacturing production figures scheduled for release, all eyes will be on Moody’s ratings review on Friday night.

In March, Moody’s Investors Service confirmed SA’s foreigncurrency sovereign credit rating as Baa3, the last rung of the investment-grade ladder. It also upgraded SA’s credit outlook from “negative” to “stable”.

At the time, Moody’s view was that the erosion of SA’s institutions would gradually be reversed under President Cyril Ramaphosa’s leadership.

Despite SA’s tepid economic performance since then, Moody’s has given every indication it will not junk the country’s ratings at its biannual review this week. At worst it could change the outlook from “stable” back to “negative”. Speaking at the agency’s summit in Sandton in September, Moody’s senior credit officer Lucie Villa said SA’s economic growth was still likely to pick up slowly and the country’s medium-term fiscal consolidation plan remained achievable. “The worst is probably behind us,” said Villa

In fact, despite forecasting some fiscal slippage in the 2018/2019 fiscal year, Moody’s expects SA’s fiscal deficit to narrow from about 4% of GDP now to reach the treasury’s target of 3.5% by 2019/2020.

Manufacturing output data for August will be released by Stats SA on Thursday.

Economists are, however, nervous about the balance of the quarter after the Absa manufacturing purchasing managers’ index (PMI) declined further in September — to 43.2 index points from a weak 43.4 in August. This suggests the sector remains under significant pressure and that base effects may have artificially boosted the July figures.

FNB chief economist Mamello Matikinca says if the August PMI is anything to go by, “the manufacturing sales data … will likely be a horror show”.

Investec economist Laura Hodes expects manufacturing production to moderate to about 0.5% year on year in August.

Monthly mining output data is usually released at the same time as the manufacturing data, but due to technical difficulties, the department of mineral resources was unable to release the August source data in time.

Stats SA says a new publication date will be announced as soon as possible.