Labour unrest, high unemployment threaten SA’s credit ratings – SA Reserve Bank

2013-10-29 13:09

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Labour unrest in South Africa and the country’s high unemployment rate are the main risks to economic growth and threaten its credit ratings, the SA Reserve Bank has said.

Any downgrade from rating companies will have “far-reaching implications” as nonresidents hold about 37% of South African government bonds, the central bank said in its Financial Stability Review, which was released in Pretoria today.

“Domestic labour unrest during the period of wage negotiations and the high level of unemployment remained two key risks for financial stability,” the central bank said. “Weak economic performance and recurring labour market tensions in South Africa continue to threaten the outlook for South Africa’s sovereign credit rating.”

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings downgraded the nation’s debt since September. Moody’s and Standard & Poor’s kept South Africa on a negative outlook, citing spending pressures and slow economic growth as risks to the rating.

The country’s inclusion in the Citigroup’s World Government Bond Index in August last year has attracted about R60 billion in inflows, according to the central bank.

“Further downgrades could trigger a negative reaction from investors, especially since it might bring South Africa’s credit rating closer to the benchmark that Citigroup uses to exclude countries,” the Reserve Bank said. “Whereas some passive investors are likely to maintain their exposures to South Africa, more active investors may reconsider.”

South Africa is rated at the second lowest investment grade by Standard & Poor’s and Fitch, and three levels above junk at Moody’s.

Strikes at industries including mining, car manufacturing and construction over the past four months have curbed economic growth, which National Treasury forecasts will slow to 2.1% this year, the lowest level since a recession in 2009.

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