What the downgrades mean for Johannesburg and its economy
Ratings downgrades always negatively affect the ‘common man’, seldom the ‘ignorant elite’ who effected them
SA was already well on its way to junk status, as the political risk associated with the country deepened — this was clear in its credit default swaps, which were at the same levels as countries with junk bonds, such as Brazil, Turkey and Russia. While political developments were the immediate catalyst for the downgrades by S&P and Fitch, weak economic growth was also an important factor. International Monetary Fund data indicate that SA barely grew in 2016 — just 0.1%. S&P’s own data is little better, showing 0.6% growth in 2016, a revision of its 1.6% forecast published in December 2015. Brazil and Russia had their S&P rating cut to junk after their economies stopped growing. When Russia was downgraded in January 2015 its GDP had shown a contraction of 2.8%. Similarly, when Brazil’s rating was cut in December 2015, its GDP had contracted by 1.5%. And the political travails of Brazil demonstrate the extent to which political risk affects the economic risk of a developing economy. A...
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