Moody’s downgrades South Africa’s growth forecast

The credit rating agency, Moody’s Investors Service (Moody’s), today June 10 said that the contraction of South Africa’s economic growth in the first quarter of 2019 is credit negative for the government and the banks in the country. As a result of this, it has lowered the country’s GDP forecast from 1.3 percent to 1.0 percent.

“The quarterly decline, the largest in 10 years, is credit negative for the government of South Africa’s revenue and policy options and South African banks’ asset quality and profitability. The first-quarter contraction presages low growth in the year as a whole, and consequently, we lowered our forecast of real GDP growth for 2019 to 1.0 percent from 1.3 percent previously,” said Lucie Villa, Moody’s lead sovereign analyst for South Africa in a note.

According to Fin24, Moody’s is the sole global rating agency to still assess SA’s sovereign debt at investment grade. In 2017, Moody’s rivals Fitch Ratings and S&P Global downgraded South Africa’s credit rating to sub-investment grade or junk. If  Moody’s also decides to downgrade South Africa, the country will be ejected from the major Citi World Government Bond Index and a lot of investors will pull out their money from the country and this could force the country into recession. A downgrade would also be a big blow to President Cyril Ramaphosa’s goal of attracting $100bn in new investment into South Africa.

South African President Cyril Ramaphosa has been fighting tooth and nail to revive the economy but the country received a shocker last week when Stats SA announced the economy shrank by 3.2 percent in the first three months of the year, the biggest drop in a decade.

From all indications, this ratings means more work for President Ramaphosa who just got elected.