Moody’s: Little chance of a downgrade of South Africa’s credit rating

Moody’s stable outlook on South Africa’s credit rating means there is little chance of a downgrade this year, the ratings agency said on Thursday, but warned that a commitment to fiscal consolidation would be key to maintaining its rating.

Moody’s changed its outlook on the South African banking system to stable from negative, reflecting the expected resilience of the banks’ financial metrics and creditworthiness over the next 12-18 months.

But Moody’s lead analyst for South Africa, Lucie Villa says the the rising share of government revenue that South Africa spends on debt servicing was a concern and that a recovery in South Africa’s economic growth will be slow and less than the Treasury’s estimate of 1.5 percent for 2018.

“Growth is going to be below 1 percent, to what extent it’s difficult to say,” Villa told the agency’s annual Sub-Saharan Africa conference, referring to this calendar year.

The agency says South Africa’s subdued GDP growth will persist this year and next, with weak investment and consumer confidence limiting household spending and private investment. Recent global dynamics in emerging markets will likely continue to pressure the local currency and further damage investor and business confidence.

“We expect growth to remain subdued in 2018/19 because of weak demand, particularly as growth in mortgage loans has slowed. We also believe that banks have further tightened their lending criteria in response to the weak economy, which will further dampen loan growth by making it harder for borrowers to take on new credit,” Moody’s explained.

Africa’s most developed economy needs faster economic growth if it is to reduce high unemployment – currently at 27 percent – and alleviate poverty, analysts say.

Unemployment is a hot-button issue ahead of national elections in 2019, and the ANC has made repeated pledges that things will improve.