Moody's cuts SA's GDP forecast as recession bites

Moody’s Investors Service has cut its estimate for South Africa’s 2018 GDP growth from 1.5% to between 0.7% and 1% after the country slipped into its first technical recession since 2009. 

On Tuesday, Stats SA announced that SA was in a technical recession after real gross domestic product contracted by 0.7% in the second quarter of the year. This follows a revised 2.6% contraction in the first quarter.  

In a research note on Thursday, Moody’s said the SA Reserve Bank was now facing "increasingly challenging decisions from an acceleration in inflation", driven in part by higher fuel prices and rand depreciation.

The central bank will be making its next interest rate announcement on September 20. 

"This weaker-than-expected economic performance adds to the fiscal and monetary policy challenges posed by the 20% depreciation of the rand against the US dollar so far this year," it said. 

The local currency was trading at R15.39/$ at noon on Thursday. In February, after Ramaphosa was elected president, it briefly touched R11.50 to the greenback. Moody’s said it expected SA GDP growth to accelerate to 1.5% in 2019. 

Moody’s is the sole major global ratings agency to have SA’s sovereign debt at above investment grade. If it were to downgrade SA to sub-investment grade, the country would automatically be removed from the Citi World Government Bond Index, forcing asset managers to sell billions of rands' worth of SA bonds.

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