South Africa cut deeper into junk by S&P as pandemic hits growth

Risk premium jumps near highest since global financial crisis
S&P says the economy will probably shrink by 4.5% this year. Image: Supplied

South Africa was cut deeper into junk territory by S&P Global Ratings on Wednesday amid concern the Covid-19 pandemic will send the economy into a sharp downturn.

The ratings firm downgraded the country’s long-term foreign-currency credit rating to BB-, three notches below investment-grade, from BB. S&P said South Africa’s cost of servicing public debt will climb to about 6.5% of GDP by 2023.

Africa’s most industrialised economy is stuck in the longest downward cycle since at least World War II with business confidence at the lowest in more than two decades and almost a third of the labor force unemployed. Output is also weighed down by power-supply constraints. Eskom, which generates about 95% of South Africa’s electricity, regularly implements rolling blackouts to prevent a collapse of the national grid.

“The Covid-19 health crisis will create additional and even more substantial headwinds to GDP growth,” S&P analysts led by London-based Ravi Bhatia wrote in a report.

The downgrade casts further gloom on South Africa. Last month, the country lost its Moody’s Investment Services investment-grade credit rating more than 25 years after it was first awarded. Meantime, the rand has slumped 23% in 2020, the second-most of any major currency tracked by Bloomberg after Brazil’s real.

“Tough decisions have to be made and collaboration between government, business, labor and civil society remains vital in order to contain the spread of Covid-19 and ensure sustainable economic recovery,” South Africa’s National Treasury said in a statement in response to the rating decision. The government is “disappointed” by the move.

S&P said South Africa’s economy will probably shrink by 4.5% this year. While the government’s decision to go into a strict lockdown relatively early could limit the health impact, it’s adding to the financial hit. Even before stay-at-home orders, the central bank forecast South Africa’s economy would contract for the first calendar year since the global financial crisis in 2009.

“The broader economic fallout will be very difficult to handle,” Bhatia said.

© 2020 Bloomberg

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…And almost no movement on the Rand off the back of that. Perhaps waiting for WGBI rebalancing today?

Should be cut to junk on NDZ and puppet Cyril’s idiocy alone

And no doubt our large asset managers will be sending out missives to their clients and the public telling them not to panic and that the JSE is now the cheapest its ever been blah blah blah.
Can MW please publish a chart showing the performance of the JSE versus the major equity markets over 5, 7 and 10 years? It’s an ugly chart–and what makes it uglier is that it’s your money, ladies and gentlemen.

Thanks for this – we’re working on your article request.

In US$ please; at least on one chart. Not only ZAR.

Yes Paul, that’s the only one that matters

The ANC ship is sinking

Don’t forget we South Africans are all on this ship whether we like it or not. Look north of us, Zim and Mozambique, on how SA will be in years to come.

Rest assured say the worlds financial leaders, the new baseless doctrine has been repeatedly declared by them all in unison. Never before have they been in such total agreement on anything so it must be true.
But excuse me if I am even more skeptical than usual because I just cannot see any hope of the rapid and V-shaped recovery of economic activity that they are crowing about, and certainly not happening any time soon or ever.
My tea leaves are without any political influence and they tell me that this bear is very likely to be here for at least another 9 years.
The US financial system was broken by blatant acts of regulatory vandalism decades ago. The consequential pandemic of related malfeasance has never stopped. The virus is just the final straw. Beware of the coin of prediction because one side is blank and represents the abyss.

End of comments.

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