Credit Ratings Agency Moody’s says electricity shortages coupled with low commodity prices and a severe drought will constrain the country’s economy over the next 18 months.
In a report released Wednesday, the agency expects South Africa to avoid recession in 2015. However, it forecasts growth of only 1.7 % this year and of 1. 9 % in 2016.
Growth at these levels will not reduce the unemployment rate significantly.
Moody’s says the country is constrained by an economy that is struggling to grow, held back by infrastructure shortages, the onset of an intense drought as well as energy challenges.
Economist at Nedbank, Busiswe Radebe says Moody’s credit analysis of South Africa is not surprising.
She says most of what the agency has raised in its report is more or less what most experts and economists in the country have been talking about.
“This is what we have been advocating, in fact at Nedbank we have been forecasting growth of 1.4% and at the current levels it is difficult for the country to create jobs,” says Radebe.
Agriculture, which accounts for around 2% of the country’s gross domestic product, has been badly hit by the drought.
Moody’s expects say the impact of the hot and dry weather conditions are to last for another year.
The agency highlights that in the mining sector, low prices for minerals have weakened companies’ earnings at a time when they have to absorb higher wages and labour costs.
Compounding some of the economic challenges in the country is consumer spending which remains under pressure
Several companies have already announced mine closures and lay-offs that will result in lower growth and export earnings.
Radebe adds “This is true because our exports will be suffering, so what we could be earning from our exports is going be reduced.”
Compounding some of the economic challenges in the country is consumer spending which remains under pressure.
Economic analyst Makwe Masilela explains “Consumer spending is very important because it spurs growth, however with the current challenges people don’t have the money to spend.”
Moody’s has warned that a downward rating on South Africa could be exerted if among other things, the investment climate deteriorates further.
This would threaten the availability of external financing for the current account deficit.