Moody’s downgrade will not sting as much as one from S&P, says economist
While a Moody’s downgrade to South Africa’s sovereign credit rating from its current rating of two levels above junk will be a disappointment, Old Mutual Investment group chief economist Rian le Roux believes a more significant indication will be whether the ratings agency changes its current outlook from negative to stable, and what this will reveal about Standard & Poor’s’ (S&P’s) rating decision next week.
“Amid worsening unemployment figures and sustained weak domestic demand, South Africa’s fears of having its credit rating downgraded have intensified as the country awaits’ Moody’s rating review this week and S&P’s review next Friday,” said Le Roux a statement on Thursday.
He added that a ratings downgrade from Moody’s would not come as a “major surprise” and did not pose “as big a risk to the market as a downgrade by S&P”, which currently has South Africa’s rating at only one level above junk status.
“If Moody’s does decide to downgrade South Africa’s credit rating, it would simply align Moody’s rating with that of S&P and Fitch. However, in the event of such a downgrade, the important thing to observe will be whether Moody’s revises its outlook from negative to stable. A stable outlook would indicate little to no intention to downgrade to junk any time soon, which will be viewed in a positive light by investors,” Le Roux explained.
Given the current economic environment, Le Roux believes that S&P could downgrade South Africa’s local rating, however, he does not expect them to downgrade the sovereign rating. “If S&P does leave our rating unchanged, this will buy South Africa little more time to get its house in order, implementing some much-needed reforms and consolidating the tentative progress that the local economy is making,” he said.
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