SA facing possible downgrade
Fitch and S&P country reviews are due this week with Fitch likely to downgrade South Africa by one notch‚ according to Investec economist Annabel Bishop. If this happens it could result in further rand weakness‚ she says. “Fitch has South Africa’s long-term local currency sovereign rating at BBB+ and South Africa’s long-term foreign currency sovereign rating at BBB‚ with respective negative outlooks‚” Bishop notes.The agency is relatively negative on South Africa overall‚ and will likely downgrade these ratings‚ if not this week‚ then next‚ she adds.She also notes that S&P recently said if the government did not demonstrate fiscal discipline‚ a reduction in its sovereign rating could be on the cards‚ and that SA was on the wrong economic track.Looking at economic data due for release this week‚ Bishop says that South Africa’s PMI on Tuesday will give some indication as to the GDP outcome for the fourth quarter‚ which is shaping up to be another weak quarter.“We expect the PMI reading to remain depressed (below 50). Vehicle sales and electricity will also give insight‚ with the contraction in vehicle sales proving one of the ongoing leading indicators to the suppressed nature of macro-economic performance in South Africa.”With regards to the local currency‚ Bishop says: “As expected‚ the rand’s recent attempt at a new‚ bullish channel did not persist‚ with a break back through R14.16/USD signaling the possibility of R14.44/USD‚ particularly with the manifestation of a Fitch downgrade‚ which we do not believe is fully priced in.”She adds that a wave pattern is likely establishing‚ although much will depend on the publication of US non-farm payrolls data this week‚ as well as Fitch and S&P’s country reviews of SA.“We expect the rand to trade in a range of R14.60/USD – R14.00/USD‚ R15.45/EUR – R14.85/EUR and R21.90/GBP – R21.20/GBP‚ as market jitters arise again in the lead up to the 16th December 2015 FOMC (US Federal Open Market Committee).“On a long-term basis (2019) we still anticipate PPP (purchasing power parity) of R12.00/USD.”..
There’s never been a more important time to support independent media.
From World War 1 to present-day cosmopolitan South Africa and beyond, the Sunday Times has been a pillar in covering the stories that matter to you.
For just R80 you can become a premium member (digital access) and support a publication that has played an important political and social role in South Africa for over a century of Sundays. You can cancel anytime.
Already subscribed? Sign in below.
Questions or problems? Email helpdesk@timeslive.co.za or call 0860 52 52 00.