Economy set to grow slowly

South Africa’s economy will recover slowly in 2019 but growth will remain below levels seen in the first half of the decade, according to Moody’s Investors Service.

The recovery will largely be driven by a reversal in the weakening of SA’s institutions “under a more transparent and predictable policy framework”, the credit ratings agency said in a report on Tuesday.

“In SA, Moody’s projects that real GDP growth will reach 1.3% in 2019 from an estimated 0.5% in 2018. We stabilised the outlook on SA’s ratings.”

Moody’s projections are in line with the World Bank, which said last week that SA would be one of the worst performers in Sub-Saharan Africa. The growth forecast for 2019 is lower than the National Treasury’s expectation of 1.7% and the Reserve Bank’s forecast of 1.9%.

The World Bank said that despite SA officially exiting a recession in the second half of 2018, growth in 2019 would remain subdued due to a combination of challenges in mining production, low business confidence and policy uncertainty.

Overall, Moody’s outlook for sovereign creditworthiness in 2019 in sub-Saharan Africa is negative “amid tightening global liquidity conditions and intensifying global trade tensions, despite gradually improving growth prospects”.

Fifteen of the 21 sovereign states that Moody’s rates in subSaharan Africa have a stable outlook, while six hold a negative stance, it said.

Moody’s is the last of the three ratings agencies that still has SA above sub-investment grade.

In 2019, Moody’s left SA’s outlook at Baa3, one notch above junk status with a stable outlook, “reflecting our view that the previous weakening of the sovereign’s institutions would gradually reverse under a more transparent and predictable policy framework”, Moody’s said.

However, it warned that SA would be hit by increased political uncertainty ahead of the upcoming elections, which could dent investor sentiment.

“Deep-rooted social and political divisions continue to hamper reform efforts”, said Moody’s. The credit ratings agency also flagged land reform, which has hit investor sentiment. SA also faces headwinds from contingent liability risk from its state-owned entities.

While SA has high foreigninvestor participation, relatively strong institutions and access to deep domestic financial markets, Moody’s warned that the country will continue to experience external pressures.

This is due to SA’s large current account deficit, high external debt repayments and large shares of foreign-currency debt. –

SA would be hit by increased political uncertainty ahead of the upcoming elections