Standard & Poor’s has revealed its concern over the disappointing state of the South African economy and its reliance on capital flows.
Just three weeks before the company is due to complete a review that may see the country cut to junk, the company’s Managing Director, Konrad Reuss who was speaking at a conference in Johannesburg, said the weakening state of South Africa’s economy is disappointing and needs urgent and drastic measures to rebuild it.
S&P’s Reuss went on to say that the company may lower the nation’s credit rating to non-investment grade when it announces the result of an assessment of South Africa’s BBB ranking on June 3.
“When we look at our announcement from December last year what really has come to the fore more than ever before is the economic assessment and the weakness in South Africa’s economy; Growth is the crux at the moment and the company believes we are in the right place with our rating,” he said.
S&P’s rates Africa’s most industrialized country just one notch above sub-investment grade, and is due to make a review in June.
The economy grew 1.3% last year and 0.6% in the fourth quarter. In its February budget, the National Treasury lowered its forecast for 2016 to 0.9% from 1.7 percent. The International Monetary Fund has cut its outlook for 2016 to 0.6%. Fellow ratings firms Moody’s and Fitch have also cited weak growth and policy upheavals as major risks to South Africa’s investment-grade rating.
However, while S&P takes note of the South African Treasury’s efforts to deliver on fiscal consolidation, the company says it sees “execution risk” on the plans and Reuss said it is also positive for South Africa that business and government are increasingly talking to each other about how to boost the economy.
“It’s important to see this dialog happening,” he said. “One wants to see what are the tangible outcomes and how quickly they are implemented.”
Meanwhile, SA’s Reserve Bank’s Deputy Governor Daniel Mminele said south Africa’s economy is flat on its back and growth is below what is needed to create jobs in Africa’s most industrialized country.
Speaking in a exclusive interview with Reuters on the sidelines of the World Economic Forum on Africa in the Rwandan capital Kigali, referring to the economy, deputy governor Mminele said SA’s economy is growing less than 1 percent this year after expanding 1.3 percent in 2015.
“That is dismal growth for an emerging market and certainly way below what we require to sort of put a dent in unemployment in a substantial and sustainable way.” he added.
The central bank expects the economy to grow by 0.8 percent this year while the National Treasury sees growth of 0.9 percent. The International Monetary Fund has cut its growth outlook for South Africa to 0.6 percent in 2016 but looking forward, Mminele said improved power supply in South Africa should spur economic growth, after electricity blackouts in the first half of last year hit economic activity.
“We expect that more capacity will come on and that that has been a big drag,” he said. It is going to be a rough time for a while but in the medium term we should see improvements (in the economy).”