File picture: Denis Farrell

Johannesburg - Fitch ratings agency affirmed South Africa's BBB credit rating on Friday, but changed its outlook to negative from stable, citing poor prospects for economic growth and rising public debt.

The rand fell to of 10.7230 against the dollar, down 0.5 percent on the day, after the review.

“Following its election victory in May with 62 percent of the vote, the African National Congress government faces a challenging task to raise the country's growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption,” it said in a statement.

Hit by a crippling strike in the platinum mines since January, South Africa's economy contracted 0.6 percent in the first three months of the year, the first quarterly output decline since a recession in 2009.

Reserve Bank Governor Gill Marcus said this week the economy was unlikely to slip into recession, but made clear that unions and mining companies desperately needed to resolve the five-month-old platinum strike to get the entire sector back on track.

Mining output surprised to the upside in April, managing a slight overall expansion against market expectations for a 7 percent contraction.

The leader of the striking Amcu platinum union also said on Friday that a wage deal was imminent, leading to hopes that the longest mining strike in South African history is nearing its conclusion.

Fitch cut its GDP forecast to 1.7 percent for this year, compared with the Reserve Bank's expectation for 2.1 percent.

However, Fitch also sounded concerns about persistent budget shortfalls that are forcing the government to borrow more and push out its plans for bringing spending onto a more sustainable footing.

The ratings agency said it expected further slippage in the consolidated government deficit for 2014/15 “owing to the growth shock and platinum strike”. The wide current account deficit was also a risk, it said.

Keeping South Africa's credit rating at BBB, Fitch said the floating exchange rate acted as a shock absorber and most of the country's debt was denominated in the local currency, while the strong banking system continued to be a supportive factor.

S&P, Fitch and Moody's all last downgraded Pretoria in the aftermath of another wave of violent labour protests in 2012 which culminated in police shooting dead more than 30 striking miners. S&P is due to give its rating review later on Friday. - Reuters