US downgrade will affect SA

Monday, August 8, 2011

Pretoria - The downgrading of the US government's top-notch credit rating will have an impact on South Africa and its exports, economists said on Monday.

"South African exports are dependent on global growth going forward," Standard Bank economist Michael Keenan said.

He added that intensifying strike action also has an impact on South African exports remaining competitive.

On Friday, rating agency Standard & Poor downgraded the US credit rating, down from the highest possible rating (AAA) to AA+, for the first time in history.

The downgrade comes at a time when the world is slogging through a sluggish recovery from the global economic meltdown.

Recent weeks have made for much drama as the US Congress engaged in what many viewed as a game of political brinkmanship while the clock ticked toward the August 2 deadline to raise the nation's debt ceiling.

Amid fears that failing to meet the cut-off date would result in the first-ever downgrade of the federal government's credit, a breakthrough was reached at the last minute as both parties scrambled to agree on a bill that raised the debt limit by $2.4 trillion.

"The big issue here is around the question of where global growth is going with the current aggravating growth outlook," noted Keenan.

Keenan said the US treasury market has always been regarded as risk minimal. "It now creates uncertainty for South Africa and global growth in general," said Keenan, adding that the downgrade could lead to other downgrades by other agencies.

"The US will probably have to implement austerity measures more. We've seen the US agreeing to cut back on debt levels and this was not enough to satisfy (the) rating agency. The matter could jeopardise the global recovery," he explained.

Nedbank economist Isaac Matshego said: "Markets are responding. The JSE was down by 1% at 9:30am. Markets are weak, [this is] ... quite serious. Exports respond to conditions and in the short term, this is not a good picture... The economy is going through a soft patch. The situation is not positive for our exports. The impact of the rating is a sharp increase in risk aversion."

"We are facing the possibility that we will bear the brunt of global concerns. Emerging markets tend to underperform to risk aversion," said Keenan.