RATING agency Moody’s on Tuesday issued yet another warning about SA’s low economic growth — the second in two weeks — saying the severe drought has pushed the country to the brink of recession.
Modest economic growth has many implications, including retrenchments, low tax revenues and less fixed investment spending by the private sector. It is also one of the reasons rating agencies have downgraded SA in the past.
"The worst drought on record in SA … is aggravating the economic slowdown, threatening near-zero growth, if not recession in 2016," senior vice-president and lead analyst for SA, Moody’s Kristin Lindow said.
This follows a statement on February 4 that lower economic growth was "credit negative" for SA because it would hamper efforts to raise tax revenues and broaden the tax base.
Until recently, Moody’s was the most upbeat on SA compared to Fitch and Standard & Poor’s, the two other major global agencies.
The spillovers from the drought, such as higher food prices and imports, would push headline inflation above the upper end of the 3%-6% target band for longer, Moody’s warned.
"The pronounced rise in inflation expectations will now result in bigger rate hikes at a faster pace," Ms Lindow said. "The increase in rates will serve as a further brake on an already weak economy, with an intensifying drought aggravating existing problems that have taken their toll on investor confidence over the past year."
The Reserve Bank raised interest rates by 50 basis points last month.
Moody’s is also worried about the rand, saying that its "steep depreciation" was having "negative consequences" for the economy.
It cut its economic growth forecast for this year to 0.5% from more than 1% previously.
The negative outlook on Moody’s Baa2 credit rating for SA suggests that a downgrade will follow if concerns raised are not addressed.
It has SA two notches above junk, while Fitch and S&P have SA one level above. Moody’s has said that Finance Minister Pravin Gordhan’s budget next week would need to "steady confidence" in SA.