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South Africa’s GDP growth slows amidst fears of ratings downgrade
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The decline in GDP was led by the manufacturing industry, which contracted by 3.2 percent.
South Africa’s economy grew marginally in the third quarter of 2016, heightening fears that the country’s credit rating maybe downgraded by ratings agencies to junk status. Gross economic product increased by 0.2 percent in Q3’16 compared with 3.5 percent in the previous quarter, according to a report by Statistics South Africa on Tuesday.
The decline in GDP was led by the manufacturing industry, which contracted by 3.2%, followed by electricity, gas and water industry, which contracted by 2.9% largely due to a decline in electricity consumed in the third quarter.
“The largest positive contributor to growth in GDP in the third quarter was mining and quarrying, which increased by 5.1% and contributed 0.4 of a percentage point to GDP growth,” the statistics agency said.
South Africa’s economy has been hit hard by the slump in global commodity prices since 2014. Investors have been irked by the government of President Jacob Zuma and his constant battle with the finance ministry. In December last year, Zuma sacked two finance ministers in less than one week. The current finance minister, Pravin Gordhan, was only recently cleared of fraud charges, which many analysts regard as baseless.
As a result of all this, the three major ratings agencies – S&P, Fitch and Moody’s – currently assign South Africa the lowest rung of their investment grade rating. Moody’s and S&P have also slapped South Africa’s rating with a negative outlook. If South Africa’s rating is downgraded to junk status, investors could dump the country’s bonds – making borrowing more expensive.
"The ratings agencies anticipated this weakness but the point is if we don't get faster growth it will be much harder to improve our fiscal metrics and improve (reduce) unemployment,” said Nicky Weimar, Nedbank’s Chief Economist.
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