Moody’s cuts low-growth, electricity starved South Africa’s credit rating

Moody’s Ratings Agency has cut South Africa’s credit rating to Baa2 from Baa1 while changing the outlook to stable from negative. Moody’s pronouncement keeps South Africa’s rating in investment grade.

The ratings agency named poor growth prospects and a worsening investor climate for its decision.

“This wasn’t really a surprise move,” says Peter Attard Montalto, Emerging Markets Economist at Nomura on Thursday. “It’s been clear for a long time that they were very bearish on the growth outlook. The point they are making is the National Treasury is doing the best they can, but that isn’t enough to secure the credit profile of South Africa.

“The micro policy and structural constraints in the economy are also key reasons for the downgrade as well as energy shortages, deteriorating investor climate and less supportive capital market environment globally for deficit countries.

“We’re still a few notches away from junk status by Moody’s, but there will probably be further downgrades in years to come. We now expect Fitch to downgrade at its next update in December."

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