Ratings outlook revised to negative due to strikes, electricity constraints

2014-06-13 08:42

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% in 2014 from a previous estimate of 2.8%, and 3% in 2015 from 3.5%, the company said today in an emailed 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 contracted an annualised 0.6% in the three months through March, restricting the government’s ability to rein in the budget deficit as quickly as targeted.

The government has pledged to narrow the budget gap to 2.8% of GDP in three years’ time from 4% in the fiscal year that ended in March. Fitch said it expected “moderate slippage” in the deficit to 4.2% in 2014-15 and the government may miss its three-year target.

“Reducing the deficit to below 3% of GDP by 2016-17 will be challenging and dependent on a recovery in growth and adherence to tough expenditure ceilings,” it said.

Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on more than 300 upgrades, downgrades and outlook changes since 1974 and through December 2012.

The World Bank this week cut its 2014 growth forecast for South Africa to 2% from 2.7%, while the International Monetary Fund said it may reduce its estimate to about 2% or less.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24


And our winner of our second case of Amstel Beer is...

We have decided to award another voter with a prize for voting for their favourite picture.


You won't want to miss...

6 myths about male cancer
Who are the highest paid models of 2017?
10 gorgeous plus-sized models who aren't Ashley Graham
5 top leg exercises for men
Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.