File: Moody's now expects the economy to contract by 2.5 percent.
JOHANNESBURG - Ratings agency Moody’s on Thursday slashed South Africa's economic growth outlook for 2020 from 1.5percent to 1percent, citing global factors that were weighing-in on emerging economies.
Moody’s said while there were indications that the country's monetary policy direction was tightening, the trade tensions and geopolitical risk had injected additional uncertainty, making long-term spending and investment decisions difficult.
It said it only expected the country's economy to grow 1.2 percent in 2021.
Moody’s also revised other emerging markets such as Argentina and Saudi Arabia downwards.
“With export growth likely to remain subdued, emerging market countries will become increasingly reliant on domestic demand to facilitate continuing economic growth,” it said.
“On the positive side, low energy prices, low inflation, and loose monetary policy will benefit emerging markets, provided that the monetary policy stance in advanced economies also remains supportive.”
Earlier this month, Moody’s reviewed South Africa’s outlook from stable to negative, mainly due to unsustainable government debt, but maintained the country's credit rating status at investment grade.
The revised forecast compares with 1.2 percent forecast for 2020 by the National Treasury released in the October Medium-Term Budget Policy Statement last month.
Moody’s said global growth would remain sluggish for the next two years as large engines of economic activity slow down due to trade wars and Brexit uncertainty.
Madhavi Bokil, Moody’s vice-president and the author of the report, said as the global economy continues to slow toward a lower long-term trend, business sentiment across major economies had become downbeat amid elevated trade policy uncertainty.
“Slowing growth has led to synchronised monetary policy accommodation, which will support financing conditions across countries,” Bokil said. “However, trade uncertainty continues and tops the list of downside risks to our outlook.”
Though the outlook has been cut, Moody’s hailed some emerging economies for policy reforms that boost their economies. The South African government is currently implementing reforms and aiming to cut spending to boost the weak economy.