Moody’s slams dismal SA growth

Agency revises forecast down to 2 percent

RATINGS agency Moody’s slammed South Africa’s economic performance yesterday as dismal thus far in 2015, after having registered exceptionally weak growth in the previous year.

Moody’s said South Africa’s rating could be downgraded if the official commitment to fiscal consolidation and debt stabilisation falters, or if the investment climate deteriorates further, imperilling the availability of external financing for the current account deficit.

In a research note, Moody’s said its growth forecast for the country has been revised down to 2 percent and it did not expect the economy to reach a 3 percent pace of growth again until 2017 at the earliest.

“Power outages have worsened dramatically in recent months, impacting industrial customers, businesses and households.”

Moody’s downgraded South Africa’s government bond rating to Baa2 on November 2 2014, taking into account the country’s weak economic growth prospects over the next several years, due to infrastructure and other constraints in addition to rising public debt ratios.

Yesterday, the rating agency said it rates South Africa’s outlook as stable, which reflects policymakers’ commitment to contain increases in government deficits and debts.

“Government efforts to restrict current spending – including the wage bill – to protect its infrastructure expansion efforts are an important part of its broader efforts to enhance longer-term growth prospects by eliminating infrastructure bottlenecks without significantly loosening the fiscal policy.”

Moody’s said the recent budget provided further assurance of continuity in macroeconomic policy and showed the Treasury is no longer relying on a recovery of growth to bring down deficits in the future.

Inflation

Meanwhile, interest rate traders will be concerned about the inflationary consequences of higher than anticipated wage settlements and another tariff hike request by Eskom.

Public servants are voting this week to decide whether to accept a final wage hike offer of 7 percent from the government and possibly avert a crippling strike.

The government is under pressure to reign in wage hikes that are higher than inflation, which Finance Minister Nhlanhla Nene has warned are unsustainable. Consumer price index (CPI) inflation was 4 percent in March.

Azar Jammine, chief economist at Econometrix, said government had grown the size of its workforce in an attempt to support employment growth but had struggled to satisfy the demands of the unionised workers.

A strike by the 1.3 million public servants could dent investor sentiment and slow economic growth as South Africa struggles with biting power cuts affecting its key mining and manufacturing sectors.

Friday is the deadline for agreement to be reached between the unions and the government, as well as the final day left for mediation, which was extended after a monthlong third-party mediations failed to broker a deal.

“We are currently consulting with our members,” Leon Gilbert, spokesman for the Public Servants Association, the largest independent public servants union with around 220 000 members, said yesterday. “The D-Day for input back to us is Friday and members will decide if we accept the offer or not.” Under the proposed increases, the state has offered to adjust salaries in the second and third years to average a projected CPI plus one percent.

Besides the salary hike, government has also offered a medical aid increase of 28.5 percent and a housing allowance of R1 200.

Unions had originally wanted 15 percent wage increases but then revised that down to 10 percent.

Jammine said the government could get away with a 7 percent public wage increase because that would be in line with the budget and 1.5 percent above inflation.

The Treasury has said the economy remains on the back foot and growth for 2015 could halve to 1 percent from a projected 2 percent, should power constraints worsen.

The country is battling with the worst supply shortages since 2008.