Improving growth is doing little to ease market concern that South Africa’s economic prospects are dimming.
Investors are paying 84 basis points more to insure the country’s debt against non-payment for five years using credit default swaps than for similarly rated Mexico, according to data.
The South African contracts are among the most expensive in the world, the figures show.
While a report on Tuesday showed gross domestic product (GDP) growth accelerated in the third quarter, and last year’s output was revised higher by 4.4 percent, headwinds including electricity shortages signal there was little momentum in the economy, Razia Khan at Standard Chartered said.
Moody’s Investors Service downgraded South Africa’s credit rating this month on concern about growth and debt.
“With downside risks to growth”, the revision to last year’s GDP will not make much difference, Khan, the head of Africa macroeconomic research at the London-based bank, said on Tuesday. “For ratings agencies, we believe South Africa’s weak growth profile is likely to be the bigger issue.”
The adjustment will affect the government’s gross debt ratio, making it more likely Finance Minister Nhlanhla Nene will keep a pledge to maintain the proportion below 50 percent of GDP. Gross government debt was projected to climb to 49.8 percent of GDP in the year to March 2018, according to forecasts in the medium-term budget released last month.
“If nominal GDP is expanding, then your debt ratios shrink,” Nicky Weimar, an economist at Nedbank Group, said on Tuesday.
Standard & Poor’s and Fitch Ratings will give sovereign rating updates on December 12.
While a separate report on Tuesday showed business confidence rallied in the fourth quarter to the highest level since March 2013, the GDP revision may not be enough to make the country more attractive for investment amid managed blackouts by Eskom.
“The economy is a bit bigger but I don’t know if it’s big enough to attract business,” Francois Stofberg at Efficient Group said on Tuesday. “Growth is not a very good show-off compared to other countries, so this won’t create a significant boost in investor sentiment.”
“The rebasing of the GDP is not material enough to alter the assessment that investors are going to make,” Peter Worthington at Barclays’ Johannesburg-based investment banking unit, said. “The concerns are broader.” – Bloomberg