Rand weakens as Moody’s cuts SA’s growth forecast

South Africa’s rand weakened and bond yields rose after Moody’s Investors Service lowered its forecasts for economic growth, raising the risk the country may lose its last investment-level credit rating.

The rand declined as much as 0.7% to trade above 15 per dollar for the first time in a week. Yields on benchmark 2030 government bonds rose four basis points to 8.9%.

Read: Moody’s cuts SA’s 2020 GDP growth forecast to 0.7%

Moody’s, which is scheduled to review South Africa’s Baa3 credit rating in March, said the country’s lacklustre economic performance was due to domestic challenges rather than external factors such as the coronavirus. A downgrade by Moody’s would see South Africa lose its place in investment-grade indexes, sparking outflows from its bond and stock markets.

Recent economic indicators suggest that industrial activity in South Africa remains weak amid low business and consumer confidence, while recurring power outages have weighed on manufacturing and mining output, Moody’s said in a report. The company lowered its forecast for gross domestic product growth to 0.7% in 2020, from 1%, and predicts expansion of just 0.9% in 2021.

“Slow growth of economic activity is hampering the rate of jobs creation,” Moody’s said. “Our sub-1% projections reflect our view that the pace of economic activity will remain subdued, well below the country’s potential, over our forecast horizon.”

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