Moody’s foresees a slow recovery for SA

SA’s economy will recover slowly in 2019 but growth will remain below levels seen in the first half of the decade, according to Moody’s Investors Service.

The recovery will largely been driven by a reversal in the weakening of SA’s institutions “under a more transparent and predictable policy framework”, the credit ratings agency said in a report on Tuesday.

“In SA, Moody’s projects that real GDP growth will reach 1.3% in 2019 from an estimated 0.5% in 2018. We stabilised the outlook on SA’s ratings.”

Moody’s projections are in line with the World Bank, which said last week that SA would be one of the worst performers in Sub-Saharan Africa. The growth forecast for 2019 is lower than the National Treasury’s expectation of 1.7% and the Reserve Bank’s forecast of 1.9%.

The World Bank said that despite SA officially exiting a recession in the second half of 2018, growth in 2019 would remain subdued due to a combination of challenges in mining production, low business confidence and policy uncertainty. 

Overall, Moody’s outlook for sovereign creditworthiness in 2019 in Sub-Saharan Africa is negative “amid tightening global liquidity conditions and intensifying global trade tensions, despite gradually improving growth prospects”.

Fifteen of the 21 sovereign states that Moody’s rates in Sub-Saharan Africa have a stable outlook, while six hold a negative stance, it said.

Moody’s is the last of the three ratings agencies that has SA above sub-investment grade. In 2019, Moody’s left SA’s outlook at Baa3, one notch above junk status with a stable outlook “reflecting our view that the previous weakening of the sovereign’s institutions would gradually reverse under a more transparent and predictable policy framework”, Moody’s said.

However, it warned that SA would be hit by increased political uncertainty ahead of the upcoming elections, which could dent investor sentiment.

While recent political developments have lowered the risk of further institutional decay, “deep-rooted social and political divisions continue to hamper reform efforts”, said Moody’s. 

The credit ratings agency also flagged land reform, which has hit investor sentiment. SA also faces headwinds from contingent liability risk from its state-owned entities (SOEs).

While SA has high foreign-investor participation, relatively strong institutions and access to deep domestic financial markets, Moody’s warned that the country will continue to experience external pressures. This is due to SA’s large current account deficit, high external debt repayments and large shares of foreign-currency debt.

Moody’s is due to issue its next rating review on March 29.

Absa senior economist Peter Worthington expects all the credit rating agencies to wait until after the elections before making any changes to SA’s ratings.

Nigeria is expected to see a similar recovery. SA and Nigeria are the region’s two largest economies.

Regional economic growth will likely expand at a faster pace than last year, said Moody’s.

GDP growth for the region is expected to accelerate to 3.5% this year from an estimated 2.8% in 2018.

“We expect credit pressures to ease relative to previous years, despite a more challenging external environment, as credit profiles display some resilience at their lower rating levels.”

menons@businesslive.co.za