SA holds breath for today’s ratings

SOUTH Africa’s economic difficulties are raising fears that two rating agencies could today downgrade their assessments of the country’s ability to repay its debt.

Data released yesterday showed that while there were signs of an easing in South Africa’s private sector downturn, there was clearly no evidence in general that indicated the country’s economy was on the mend.

The economy narrowly avoided a recession in the third quarter, posting 0.7 percent annualised growth after a 1.3 percent contraction in the previous three months as electricity shortages, low global demand and falling metal prices stifled output.

Meanwhile, the performance of the economy is being put under a spotlight today when two major rating agencies announce the outcome of their reviews of South Africa’s ability to repay its debt.

Rating agencies have been concerned about growth, the current account, government finances and power generation.

Market expectations are that Fitch Ratings will cut its assessment to BBB-, the lowest investment grade, while Standard & Poor’s (S&P) should keep its rating at one level above junk. But some analysts are predicting that the company will lower its outlook to negative.

Finance Minister Nhlanhla Nene cut the growth forecast for this year to 1.5 percent from 2 percent in his medium-term budget last month.

Tax revenue projections fell, forcing Nene to push out the timeline to lower the budget gap to 3 percent of gross domestic product (GDP).

Two days ago, Nene said a potential credit ratings downgrade would affect markets in Africa’s most industrialised economy. “We are always on the lookout for such. We are always on alert. If it does happen, it will have an impact on markets,” Nene said.