If Moody’s and S&P Global Ratings cut the government’s rand-denominated bonds to junk on Friday evening, as is widely expected, the economy is likely to contract by more than 1% in the first quarter of 2018. Averaging what happened to Brazil, Turkey, Russia and Hungary after they were cut to junk by the major credit ratings agencies, Investec Bank economist Annabel Bishop said in a note e-mailed on Wednesday that SA needed to brace itself for a contraction in GDP of about 1.1% in the initial three months following the downgrade from the previous three months. Based on what happened in other countries, after three months, average economic growth recovered by about 0.3%. "At the point of downgrade the currency depreciates by about 13% on average versus the previous three months. After three months it appreciates by about 11% on average, and then appreciates by around 8% six months later, but weaker than a year prior," Bishop wrote. A 13% depreciation would weaken the rand to about R15...
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