MOODYS: GDP Growth will not reach 2% in the coming two Years

Just four weeks before the Mid Term Budget of Butcher of Finance, Nhlanhla Nene, Moody’s said South Africa’s rating outlook remained stable, which it said reflects SA policymakers’ commitment to containing increases in government deficits and debt. “Despite weak indicators and depressed business confidence that continue to undermine investment prospects, we expect recession to be avoided this year, although we no longer expect growth to reach 2% either this year or next,” Kristin Lindow, Moody’s senior vice president, said in a statement on Wednesday.

Gross Domestic Product (GDP) contracted by 1.3% in the second quarter of 2015, resulting in a annualised GDP Growth of only 1.2%. Moody’s warned that there was a risk of a downgrade if the government’s commitment to fiscal consolidation and stabilising debt faltered or the investment climate deteriorated further. We remember: It cut the country’s rating to Baa2 from Baa1 in November last year, citing poor prospects for medium-term growth and rising public debt, but changed its outlook to stable from negative. The rating agency’s credit opinion comes ahead of the SA Reserve Bank announcement on coming Wednesday regarding the outcome of its quarterly Monitory Policy Committee meeting to regulate the repo rate.

Surprisingly August’s Consumer Price Index (CPI) figures remained the same as July’s at 4.6%, Statistics SA announced last week, a sign that the lending rate could remain the same – MPC allowing. “The implementation of structural reforms to enhance growth and reduce exposure to shocks, as well as fiscal prudence, could result in a better Moody’s rating”, said Lindow. “Reforms resulting in higher domestic savings and investment rates and sustainable, stronger growth, alongside continued restraint in public debt accumulation and the ongoing implementation of the macro- and micro-level reforms embedded in the National Development Plan, would also be credit positive.”

Butcher Nene’s tough budget decisions to cut government spending will hopefully become clearer in the Medium Term Budget Policy Statement scheduled to be presented to parliament on October 21. But as usual with this minister, we have little hope for honesty and a rational plan and rather await his pants being on fire yet again…

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