S&P revises outlook on SA to 'negative'

DECEMBER 5, 2015

Standard & Poor's credit ratings agency on Friday revised the outlook on the South Africa to negative from stable.

"We affirmed the long- and short-term foreign currency sovereign credit ratings on South Africa at 'BBB-/A-3'. We also affirmed the 'BBB+/A-2' long- and short-term local currency ratings," S&P's said in a statement.

"The negative outlook reflects our view that GDP growth might be lower than we currently expect; for instance, due to persistent electricity shortages, continued weak business confidence, or labor disputes escalating again.

"The outlook also reflects our view that fiscal flexibility might reduce owing to contingency risks from state-owned entities with weak balance sheets," the agency said.

Finance minister Nhlanhla Nene said on Wednesday that a potential credit ratings downgrade would impact markets in the SA economy.

"We are always on the lookout for such. We are always on alert. If it does happen, it will have an impact on markets," Nene told Reuters.

By 19:00 the rand was down 0.63% lower against the dollar at R14.29/$.

According to S&P's the outlook revision reflected South Africa’s still-slow pace of economic growth, which the agency revised down further to 1.4% for 2015 from their June estimate of 2.1%. 

"This is due to a combination of weak external demand, with low commodity prices, and domestic constraints including an inadequate electricity supply and overall weak business confidence inhibiting substantial
private sector investment," it said.

The agency expected GDP growth in 2016 to remain around 1.6% and only increase above 2% from 2017 as the capacity of electricity supply improved with the output from new power plants.