Downgrade a worrying sign

THE recent credit downgrades for the South African economy could translate into fewer jobs, lower salary increases, and a weakening rand, which would mean higher inflation costs for Joe Public, economist Chris Hart said.

On Thursday Fitch became the latest rating agency to downgrade South Africa’s credit rating after Standard & Poor (S&P) and Moody’s downgrade in September and October last year.

Credit ratings indicate a country’s risk level to the international investor fraternity, which according to Hart helps them decide where to plant their capital, which ultimately impacts on job creation.

Hart said the spate of violent mining sector strikes marked by the death of 44 people at a Lonmin mine last year and the latest agricultural sector strikes in the Western Cape, had all cast a dark shadow on South Africa’s economic outlook for investors.

“For the man on the street, the impact of a downgrade means fewer job opportunities, lower salary increases and sometimes a higher inflation rate because the local currency weakens as a consequence.

“Investors are a critical part of any economy because all economic activity starts with investment. [The downgrade] means rating agencies see South Africa as more risky from an investment point of view, so SA will be less attractive to investors,” Hart said. The rand weakened overnight following this week’s downgrading. — Additional reporting by I-Net Bridge