S&P slashes SA’s credit rating

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Standard&Poors Reuters The Standard & Poor's building is seen in New York. Picture: Jessica Rinaldi

Johannesburg - South Africa’s credit rating was cut by one level to BBB- by Standard & Poor’s after the economy contracted in the first quarter amid the country’s longest mining strike.

The foreign-currency rating was lowered from BBB and the local-currency rating was reduced to BBB+ from A-, the company said on its website today.

The outlook on the ratings were raised to stable from negative.

Fitch Ratings earlier today lowered the outlook on its BBB grading to negative from stable.

South Africa’s economy, the second-largest on the continent after Nigeria, is threatened with recession as a 20-week strike over pay shut the world’s biggest platinum mines.

Gross domestic product contracted an annualised 0.6 percent in the quarter through March, restricting the government’s ability to rein in the budget deficit as quickly as targeted.

The World Bank this week cut its 2014 growth forecast for South Africa to 2 percent from 2.7 percent, while the International Monetary Fund said it may reduce its estimate to about 2 percent of less.

The government has pledged to narrow the budget deficit to 2.8 percent of GDP in three years’ time from 4 percent in the fiscal year that ended in March.

The government will accelerate plans to boost economic growth and remains committed to maintaining fiscal sustainability and keeping debt at manageable levels, the National Treasury said in an e-mailed statement earlier today, following the Fitch assessment.

“While short-term cyclical factors might cause marginal deviations from targets, we will not deviate from the long-term trajectory,” it said.

“All necessary adjustments will be made to achieve the fiscal path.”

Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on more than 300 upgrades, downgrades and outlook changes since 1974 and through December 2012. - Bloomberg News

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