Moody's Cuts South Africa 2018 Economic Growth Forecast by Half

(Bloomberg) -- Moody’s Investors Service more than halved its economic growth forecast for South Africa after news that it plunged into a recession in the second quarter.

The ratings company now projects the economy will expand 0.7 percent to 1 percent this year, compared with 1.5 percent estimated before.

“This weaker-than-expected economic performance adds to the fiscal and monetary policy challenges posed by” the depreciation of the rand against the dollar so far this year, Moody’s Vice President Lucie Villa said in an emailed report Thursday. While the ratings company had anticipated the government would miss its fiscal targets this year due to low tax performance, higher-than-budgeted interest payments and the wage bill, “slower growth will further challenge the task of the National Treasury,” she said.

Moody’s is the only one of three major rating companies that still assesses South Africa’s bonds as investment grade. The outlook is stable. A downgrade by Moody’s, which is scheduled pronounce on the rating in Oct. 12, could see a sell-off in local-currency bonds.

The rand extended losses after news of the recession, pushing inflation expectations to the highest since June. While price growth remains inside the central bank’s target range of 3 percent to 6 percent, the rate was at a 10-month high in July, pushed up by gasoline prices.

The Reserve Bank “faces increasingly challenging decisions from an acceleration in inflation, driven in part by petroleum prices and rand depreciation,” Villa said.

©2018 Bloomberg L.P.