Weak economic growth or a recession would see ratings agencies downgrade SA to subinvestment grade, or the so-called junk status, causing a sharp rise in borrowing costs. "The worst drought on record in SA is aggravating the ongoing economic slowdown, threatening near-zero growth if not recession in 2016," senior vice-president and lead analyst for SA at Moody's Kristin Lindow said.
Negative spillovers from the agriculture sector will increase food inflation and imports and motivate policy responses that will further slow already sluggish growth, the agency warned.
The Reserve Bank has already responded to rising inflation by raising interest rates 50 basis points last month, despite the negative effect on consumers' spending and thus economic growth.
Food imports would keep the current account deficit above 3% of gross domestic product, Moody's said.
Moody's rates SA at Baa2 with a negative outlook. This rating is slightly more optimistic than the other two ratings agencies "Fitch and Standard & Poor's" as it is two levels above speculative grade or junk status.
Source: BDpro
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