S&P optimistic on economic growth
CREDIT rating agency Standard & Poor’s (S&P) is more optimistic than Finance Minister Nhlanhla Nene about local economic growth in 2015.
The South African economy is expected to grow by between 2 percent and 2.5 percent this year, S&P said yesterday.
Nene projected economic growth in 2015 at just 2 percent, down from 2.5 percent indicated in October.
The S&P forecast has priced in the impact of the electricity crisis, which was expected to cost around 0.3 percent of gross domestic product (GDP), said Jean-Michel Six, S&P European chief economist. “We certainly saw the fourth quarter GDP as a pleasant surprise after a disappointing 2014.”
The rating giant downgraded South Africa’s long-term sovereign credit rating in December to BBB- from BBB, but with a stable outlook.
S&P will announce the next rating in June.
But Christian Esters, senior director of sovereign ratings, said: “I cannot give an indication if the rating will move. It is more likely it will not change. I don’t expect it to change within the next 24 months.”
Six and Esters were speaking at a media briefing to outline South Africa’s economic outlook and the global macro outlook.
Esters said the key fundamentals in the economy have not changed since the last rating.
However, Esters said: “The effect on growth will affect the fiscal position of National Treasury in terms of revenue, and a possible direct impact will happen if it has to support Eskom.”
He said S&P was waiting to see which assets the government would sell to support Eskom. He said the public sector wage settlement was a risk, if an increase was above inflation, contrary to what the Treasury had insisted on.
Esters said that the floating exchange rate was positive and was seen as a tool to absorb external shocks. He said when rating South Africa, factors it generally looked at were political institutions, the external position like the current account deficit and monetary policy.
“We consider these to be fairly strong although we have seen the current account deficit increase over the past years. Apart from the trade deficits, there are dividend payments that contribute to the current account deficit.”
Last week, Moody’s Investors Service said Nene’s budget reflected a continuing effort on the part of the government to address the past five years’ fiscal deterioration in an environment of persistently low growth.
The ratings agency said the primary risk to these objectives over the three-year horizon depicted in the budget derives from salary increases demanded by public servants, given the high share of the wage bill in total government spending.
“Other impediments include how government will address the financial condition of certain state-owned enterprises, and more broadly, the possibility of even more subdued growth due to ongoing electricity shortages and weak global demand.”