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A downgrade of South Africa’s credit rating to “junk” status by Standard & Poor’s (S&P) would unleash a “shock” that could knock the country into a recession and place 200 000 jobs, plus a further 600 000 related dependants, in peril.
During a presentation this week, Standard Bank economist Goolam Ballim said: “The concentration of the damage [in the event of a downgrade] is going to be in the industrial side of the economy, as well as in the retail and wholesale sectors – service jobs are at risk, as are the various chains of production in the economy.
“The quality of our politics is compromising every single South African citizen’s welfare ... The nation is being held hostage.”
There was a strong likelihood that S&P could downgrade South Africa to junk on Friday, Ballim said.
Financial markets – to a degree – might have factored in a credit downgrade, but the “real economy, where income and employment manifest”, would be in for a major adjustment as a result of a credit downgrade, he said.
Financial markets tend to convulse before a downgrade, but “the real economy smashes afterwards”.
Like rival Fitch Ratings, S&P’s existing rating is just one point above sub-investment grade, or junk status.
This is in contrast to the way Moody’s Investors Service sees South Africa. Earlier this month, it affirmed the country was two notches above junk status.
S&P has its credit rating of South Africa on a “negative” outlook, while Fitch has its local rating on “stable”.
Last month, Gardner Rusike, an S&P analyst, said that one of the key pressures on the local rating was the country’s low growth. South Africa is expected to grow by less than 1% this year.
Ballim said that if the local economy had continued to grow at the same rate as it did in 2008, South Africa would have generated R1.84 trillion in extra real GDP from 2008 to 2015.
In addition, local, idiosyncratic shocks, such as the power crisis and the political climate, have reduced growth by a total of R1.03 trillion in potential real GDP from 2008 to 2015.
Since the 2008 global financial crisis, the South African economy had lost 1.4 million jobs.
If S&P downgrades South Africa to junk on Friday, the local economy could contract this year to a negative 0.3% growth, compared with the 0.6% that Standard Bank is forecasting for this year without such a downgrade.
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