A CREDIT rating downgrade to speculative grade, or junk, in SA will damage government’s policy making credibility but is unlikely to have a major effect on the economy or local financial markets, London-based Capital Economics economists said on Wednesday.

"From the perspective of the financial markets, a ratings downgrade already seems to be priced in," the research note said. "After all, a shift from investment grade to junk status would tell us nothing new; the economy’s problems of low growth, a wide budget deficit and a rising debt ratio should be well known by now."

Rating agencies have warned that SA could be downgraded if it fails to grow its economy at a faster pace.

The fear that a downgrade could lead to higher bond yields and borrowing costs was overdone, the economists said.

Two rating agencies, Fitch and Standard & Poor’s, have SA just one level above speculative grade – meaning a downgrade from either one of them will see SA’s credit rating at junk. Moody’s still rates SA two notches above junk.

Capital Economics was also confident that SA was "a long way away" from a debt crisis. "While SA’s debt ratio is on an upward trajectory, it is unlikely to reach an alarming level any time soon."