Fitch Ratings has had South Africa on a BBB rating with a negative outlook since June last year, but continued bad news could drive this lower towards junk status, which would deter investors.
Ed Parker, an analyst at the Fitch London office, said the Stats SA figures showing that the economy had shrunk by an annualised 1.3% in the second quarter as manufacturing fell into recession were “bad numbers that were worse than expected”.
“If weak growth goes negative through the third quarter, it could contribute to considering a move to downgrade at the end of the year.”
The country’s creditworthiness is another crucial factor and any moves that will increase deficits will add to the chances of a downgrade.
Strikes in the gold sector will also have a bearing on the next sovereign rating.
And although South Africa’s floating exchange rate acts as a buffer to external shocks, “the falling exchange rate is another indicator of the pressures facing the country”, he said.