Written by Rene Vollgraaff and Jaco Visser | From Bloomberg
South Africa’s credit rating outlook was revised to negative from stable by Fitch Ratings because of a deterioration in the country’s growth prospects.
Fitch downgraded its gross domestic product growth forecasts to 1.7 percent in 2014 from a previous estimate of 2.8 percent, and 3 percent in 2015 from 3.5 percent, the company said today in an e-mailed statement. The rating was maintained at BBB, it said.
“Increased strike activity, high wage demands and electricity constraints represent negative supply side shocks,” Fitch said. “So far, the sharp depreciation of the rand over the past two years has not fed through to clear signs of improvement in competitiveness and growth.”
South Africa’s economy, the second-largest on the continent after Nigeria, is threatened with recession as a 20-week strike over pay shut the world’s biggest platinum mines. GDP (SAGDPANN) contracted an annualized 0.6 percent in the three months through March, restricting the government’s ability to rein in the budget deficit as quickly as targeted.
The ratings outlook has already been taken into account by the spread of credit default swaps, Carmen Nel, a fixed-income analyst at RMB in Cape Town, said by phone today. The cost of insuring South Africa’s dollar debt against default rose 12 basis points to 179 yesterday.
Weaker Rand
“If they do follow through with a downgrade, then it should put upward pressure for the government as well as any entity related to the government,” she said. “There it would be specifically the likes of Eskom and Transnet which would like to tap the offshore markets.”
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