SA’s growth too slow, says S&P

caution was a contrast to the more positive message from Moody’s Investors Service, which on Friday night upgraded its outlook on SA’s rating from negative to stable and affirmed the rating at investment grade — allaying fears that the country could have been junked by all three agencies.

The unexpectedly upbeat report from Moody’s prompted some economists to ask whether S&P was wrong to downgrade SA in November. In an economic update on Tuesday, S&P senior economist Tatiana Lysenko said new leadership and ensuing policy announcements had boosted local and foreign investor confidence, but structural challenges remained.

“A revival in confidence and lower funding costs should support business investment, while a boost to real income from lower inflation bodes well for household spending. This should more than offset any drag on growth from the announced fiscal tightening.”

But Lysenko questioned how quickly reform efforts would ease structural constraints to economic growth.

“The government has taken some steps to improve governance of SOEs [state-owned enterprises], which is an important development, but we are yet to see reform progress in other areas. A key constraint is the rigid labour market with its inefficient wage-setting mechanisms and higher barriers to entry and exit,” Lysenko said.

On Eskom, S&P said it remained unclear how the power utility’s liquidity issue would be resolved, despite the overhaul of the board and the extension by banks of a R20bn short-term credit line.

“The budget didn’t reveal a plan,” said S&P corporate ratings director Omega Collocott, explaining on Tuesday why the agency had again downgraded its rating on Eskom at the end of February, taking it deeper into junk territory.

S&P’s calculations show SA’s real per capita GDP growth in dollar terms over the past 10 years is now marginally positive, thanks to the recent appreciation in the rand exchange rate, but at close to zero it is still far below the 2% average of its emerging market peers.

A REVIVAL IN CONFIDENCE AND LOWER FUNDING COSTS SHOULD SUPPORT BUSINESS INVESTMENT