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On Friday a few minutes before the clock struck midnight, Moody’s downgrade South Africa to junk. Mike Brown, CEO of Nedbank warns that this will make it increasingly difficult to borrow money around the world and in the COVID-19 era more will be expected from banks.

COVID-19 will see more demand from banks – Nedbank CEO

JOHANNESBURG (Reuters) &#8211; South Africa’s rand plunged to an all-time low on Monday, falling below 18.00 to a dollar after ratings firm Moody’s cut the country’s last investment grade credit rating, adding to mounting panic about the coronavirus outbreak. 



At 0600 GMT the rand was 1.42% weaker at 17.9100 per dollar, pulling back slightly from the all-time low of 18.0800 it crashed to in Asian trading, indicating that the fallout of the coronavirus-led lockdown is likely to hurt local assets. 



Moody’s downgraded the rating one notch to ‘Ba1’ from ‘Baa3’ and maintained a negative outlook, meaning another downgrade could follow if the economy performs worse or government debt rises faster than expected. 



It was the last of the top three ratings firms to downgrade Africa’s most industrialised economy to sub-investment grade, following S&amp;P Global and Fitch’s downgrades in 2017. 



The latest ratings cut will see South Africa kicked out of the benchmark World Government Bond Index (WGBI) of local-currency debt, triggering up to $12 billion of forced selling, treasury and analysts estimate. 



Bonds were also weaker, with yield on the benchmark government bonds due in 2026 rising 72.5 basis points to 11.215%.



“We have previously argued that much of the downgrade has already been priced in and that we do not expect a capital exodus following the decision,” analysts at NKC Economics said in a note. 



“However, the global economic environment has changed considerably since the start of March.” 



South Africa’s confirmed coronavirus cases increased by 93 to 1,280 on Sunday and the death toll doubled to two. The country is its fourth day of a national lockdown and officials announced new measures to deal with the economic fallout. 



(Reporting by Mfuneko Toyana; Editing by Vinay Dwivedi)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21H0S6-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21H0S6-OZABS</a> and is republished with its permission.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

South Africa’s rand crashes to its lowest ever after Moody’s pulls the plug

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Moody’s downgraded South Africa’s sovereign credit rating to junk status on Friday evening and this has left has left government concerned and trembling in its boots to what extent that this might have on the economy. The downgrade coupled with the COVID-19 fears is bringing much stress to the rand as well as the markets. Joining CNBC Africa to unpack it all is Rashaad Tayob, Fund Manager at Abax Investments and Jacques Celliers, CEO of FNB.

Moody’s downgrades SA to junk status – what does this mean for the economy?

By The South African Treasury 



Government notes the <a href="https://www.cnbcafrica.com/insights/sa-downgrade/2020/03/27/moodys-downgrades-sa-to-junk/">decision by Moody’s </a>to downgrade South Africa’s long term foreign and local currency debt ratings to ‘Ba1’ from ‘Baa3’ and maintain the negative outlook. South Africa’s credit ratings by Moody’s are now one notch below investment grade. 



According to Moody’s, the following are key drivers behind the downgrade: 



<ul><li>Structurally very weak growth and constrained capacity to stimulate the economy. </li><li>Inexorable rise in government debt over the medium term. </li></ul>



The negative outlook reflects the risk that economic growth will prove even weaker and the debt burden will rise even faster and further than currently expected, weakening debt affordability and potentially, access to funding. 



The decision by Moody’s could not have come at a worse time. South Africa, like many other countries, is seized with containing the outbreak of the <a href="https://www.cnbcafrica.com/covid-19/">coronavirus</a> (COVID-19). The impact of COVID-19 is felt across various sectors of the economy including the financial markets which experienced a significant sell-off in equities, bonds and exchange rates as investors retreated to safe haven securities amid the uncertainty. 



The sovereign downgrade will further add to the prevailing financial market stress. These two events will truly test South African financial markets. South Africa’s deep, stable financial sector and robust macroeconomic policy framework have always been flagged as a credit strength, including the South African Reserve Bank’s demonstration of a good track record in implementing credible and effective monetary policy and preserving financial stability. 



The sovereign downgrade will further see South Africa being excluded from the FTSE World Government Bond Index (WGBI) and the government bond market will experience further capital outflows as fund managers with investment grade mandates will be forced to sell South African government bonds. Non-residents currently hold approximately 37% (R800 billion) of the total domestic government bonds and the number is expected to substantially decline with the combined impact of COVID-19 and the downgrade. The interest rate for government, households and the broader economy is also expected to increase as a result. While some market participants argue that the impact of a sovereign downgrade has already been priced in, it is difficult to stipulate with certainty the extent. 



“Therefore, to say we are not concerned and trembling in our boots about what might be in the coming weeks and months is an understatement,” Minister of Finance, Mr Tito Mboweni, said. 



In the immediate period, South Africans under the leadership of his excellency Mr Cyril Ramaphosa have rallied together to fight COVID-19 to ensure South Africa emerges triumphant from the pandemic. The President announced a number of measures to offset the COVID-19 impact on the economy and its people including a 21-day lockdown which commenced on March 27 to combat the spread of the virus. In relation to financial markets functioning, the South African Reserve Bank has also announced a set of interventions to stabilize financial markets and provide much-needed stability. 



In addition, over the short to medium term, government remains committed to implementing structural economic reforms to address the weak economic growth, constrained fiscus and the ailing state-owned companies. Government is providing medium-term support to Eskom to secure energy supply and to honour the state’s contractual obligations. National Treasury, in partnership with the Department of Public Enterprises, is instituting a series of measures to stabilise finances at the various stateowned companies. The sustainability of government finances remains important and critical to attain and maintain, not only for credit ratings’ sake, but more importantly for the sake of South Africans. 



“It is with a heavy heart to note that all three major credit ratings agencies currently rate South Africa at sub-investment grade. However, every crisis presents an opportunity. The opportunity we have today is to unite and work together to address our challenges. We as a people have overcome insurmountable challenges in the past and we can still overcome. We shall rise. We have to rise. We owe it to ourselves,” Minister Mboweni said. 



Government urges all South Africans to unite, remain positive and continue to work handin-hand to turn the economy around.

Government’s response to Moody’s downgrade of SA to junk status

South Africa&#8217;s Moody&#8217;s reprieve is over. The rating agency, the last to rate the country investment grade, has cut South Africa’s sovereign credit rating to junk <a href="https://www.cnbcafrica.com/news/2020/03/27/moodys-to-cut-south-africas-sovereign-credit-rating-to-junk-economists/">in line with economists&#8217; forecast</a>. This comes as the country&#8217;s recession deepened by the impact of COVID-19 frustrates its economic reform efforts and stifles its plans to reduce government debt.



The action will result in South Africa&#8217;s expulsion from the World Government Bond Index (WGBI), as a consequence those funds tracking this index as a benchmark will become forced sellers.



<a href="https://www.cnbcafrica.com/insights/sa-downgrade/2017/11/24/sa-downgrade-2/">Analysts have warned </a>that the magnitude of this forced selling could be as high as $8 billion (R141 billion at R17.64 exchange rate).&nbsp; 



Moody&#8217;s issued the following statement explaining its reasons: 



Moody&#8217;s Investors Service, (&#8220;Moody&#8217;s&#8221;) has today downgraded the Government of South Africa&#8217;s long-term foreign-currency and local-currency issuer ratings to Ba1 from Baa3. The outlook remains negative. A Ba1 rating is judged to have speculative elements and a significant credit risk. 



READ: <a href="https://www.cnbcafrica.com/news/financial/2020/03/28/governments-response-to-moodys-downgrade-of-sa-to-junk-status/">SA government&#8217;s response to Moody&#8217;s downgrade </a>



The key driver behind the rating downgrade to Ba1 is the continuing deterioration in fiscal strength and structurally very weak growth, which Moody&#8217;s does not expect current policy settings to address effectively.



Both outcomes speak to weaker economic and fiscal policy effectiveness than Moody&#8217;s previously assumed.



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The negative outlook reflects the risk that economic growth will prove even weaker and the debt burden will rise even faster and further than currently expected, weakening debt affordability and potentially, access to funding.



Moody&#8217;s also downgraded South Africa&#8217;s long-term foreign-currency and local-currency senior unsecured debt ratings to Ba1 from Baa3, its foreign-currency senior unsecured MTN and senior unsecured Shelf ratings to (P)Ba1 from (P)Baa3, as well as its foreign-currency other short-term rating to (P)NP from (P)P-3.



In a related action, Moody&#8217;s downgraded ZAR Sovereign Capital Fund Propriety Limited&#8217;s foreign currency, backed senior unsecured debt rating to Ba1 from Baa3 and maintained its negative outlook. ZAR Sovereign 



Capital Fund Propriety Limited is a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government.



All South Africa&#8217;s long-term country risk ceilings were revised down by one notch. Its long-term local-currency bond and bank deposits ceilings were revised down to A3 from A2, and the long-term foreign-currency bond ceilings to Baa1 from A3. The short-term bond foreign-currency ceiling remained unchanged at Prime-2. Moody&#8217;s also lowered the long-term foreign-currency bank deposits ceilings to Ba1 from Baa3 and the short-term foreign-currency bank deposits ceiling to Not Prime(NP) from Prime-3.



RATINGS RATIONALE



RATIONALE FOR THE RATING DOWNGRADE TO Ba1



STRUCTURALLY VERY WEAK GROWTH AND CONSTRAINED CAPACITY TO STIMULATE THE



ECONOMY



Unreliable electricity supply, persistent weak business confidence and investment as well as long-standing structural labour market rigidities continue to constrain South Africa&#8217;s economic growth. As a result, South Africa is entering a period of much lower global growth in an economically vulnerable position. The government&#8217;s own capacity to limit the economic deterioration, in the current shock and more durably is constrained. Fiscal space is very limited and looser monetary policy will not address underlying structural problems. The unprecedented deterioration in the global economic outlook caused by the rapid spread of the coronavirus outbreak will exacerbate the South Africa&#8217;s economic and fiscal challenges and will complicate the emergence of effective policy responses.



Progress on structural economic reforms has been very limited. Some initiatives to improve competition and encourage job creation have progressed, but none that constitute a step-change for the economy. 



Structural issues such as labour market rigidities and uncertainty over property rights generated by the planned land reform remain unaddressed. 



Moreover, a strategy to stabilize electricity production has been slow to emerge and has yet to prove its effectiveness. Moody&#8217;s assumes that while power supply will become more reliable, the restoration of full capacity will take some years to complete. As a result, after the immediate sharp downturn, growth will remain very low in the following years.



INEXORABLE RISE IN GOVERNMENT DEBT OVER THE MEDIUM TERM



South Africa&#8217;s debt burden will rise over the next five years under any plausible economic and fiscal scenario.



Debt-to-GDP increased by 10 percentage points (ppts) over 2014-18 and will rise by a further 22 ppts over 2019-23 under Moody&#8217;s baseline projections. Over that timeframe, Moody&#8217;s expects primary deficits to persist. The fiscal deficit will widen in fiscal 2020 to around 8.5% of 



GDP, as revenue declines this year, only narrowing very gradually thereafter. Fiscal strains from interest payments and support to state-owned enterprises will continue.



In this context, and consistent with the recently announced budget, any fiscal consolidation will rest primarily on containing the large and growing public sector wage bill. The government aims to achieve ZAR160 billion (3% of GDP) in savings over the next three fiscal years by keeping wage growth below inflation. That would mark a material departure from current agreements and past outcomes, and as such is likely to prove challenging to implement. Moody&#8217;s expects expenditure on wages to exceed budget at least in 2020.



Interest rates are likely to rise above the levels assumed in the budget and nominal growth will be weaker. Moody&#8217;s estimates that the debt burden will reach 91% of GDP by fiscal 2023, inclusive of the guarantees to state-owned enterprises from 69% at end of fiscal 2019. Even if the government&#8217;s plans to restrain wage growth were fully implemented, debt-to-GDP would still continue to rise significantly. Similarly, even under a scenario of more effective improvement in tax compliance and falling interest rates from fiscal 2021, government debt would still rise to around 87% by 2023.



RATIONALE FOR THE NEGATIVE OUTLOOK



The negative outlook reflects downside risks around economic growth and fiscal metrics, that could lead to an even more rapid and sizeable increase in the debt burden, further lowering debt affordability and potentially weakening South Africa&#8217;s access to funding.



Downside risks to growth are both immediate and longer term, relating to heightened uncertainty about the economic impact of the coronavirus pandemic and to the possibility that negative economic sentiment becomes further entrenched as policymakers and stakeholders continue to struggle to reach consensus on the structural reforms that would sustainably stimulate growth and employment. With unemployment at already very high levels (29%), even weaker growth would have significantly negative social implications.



Should these downside risks materialise, South Africa&#8217;s government debt would stabilise later and at a higher level than currently expected by Moody&#8217;s. A steeper increase in debt would weaken debt affordability, potentially challenging the government&#8217;s currently strong access to funding at manageable costs, particularly during periods of acute risk aversion by global investors such as at present. Although South Africa&#8217;s exposure to global financing conditions is mitigated by its reliance on local currency debt, its weak economic and fiscal fundamentals could exacerbate adverse capital flows.



ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS



Environmental risk influences Moody&#8217;s assessment of South Africa&#8217;s economic resilience. Due to its geographical location, South Africa is subject to frequent climate change-related shocks such as droughts which undermine the agricultural sector&#8217;s performance and weigh on growth. Set against that, the country&#8217;s economic diversification and sophisticated agricultural techniques mitigate the impact of environmental considerations on South Africa&#8217;s credit profile.



Social considerations are material for South Africa&#8217;s credit profile and their implications for the economy and public finances are a driver of the rating downgrade. Deep socio-economic inequalities complicate the implementation of reforms that would otherwise unlock the economy&#8217;s significant potential. They also contribute to tensions and resistance from key stakeholders that ultimately fuel political risk.



Governance considerations are material to South Africa&#8217;s credit profile. South Africa&#8217;s ranking under the Worldwide Governance Indicators is stronger than Ba1-rated sovereigns, and the strength of key institutions, 



in particular the South African Reserve Bank and the Treasury, support the rating. However, the broader erosion in institutional strength induced by the wide-spread corruption of the Zuma administration is an important factor behind the erosion in South Africa&#8217;s credit profile in recent years. Moreover, the legacy that era has bequeathed of poor governance of state-owned enterprisess remains a key drain on fiscal resources.



WHAT COULD CHANGE THE RATING UP



Given the negative outlook a rating upgrade is unlikely
in the near future.



Moody&#8217;s would likely change the rating outlook to stable if the government&#8217;s medium-term fiscal consolidation were to proceed broadly in line with the rating agency&#8217;s central expectations, with prospects of a slow but durable pick-up in growth and financing risks remaining low. In this scenario, Moody&#8217;s would likely see a gradual reduction in South Africa&#8217;s primary deficit in the next few years, with increasing assurance that government debt will stabilize comfortably below 90% of GDP.



WHAT COULD CHANGE THE RATING DOWN



South Africa&#8217;s ratings would likely be downgraded if Moody&#8217;s were to conclude that any combination of very weak growth, failure to reduce the primary deficit, and rising financing costs was likely to cause the debt burden to rise to even higher levels than currently projected with even greater uncertainty regarding its eventual stabilisation, in turn threatening South Africa&#8217;s access to funding at manageable costs. Such an outcome would speak to weaker institutional policymaking capacity and, over time, a diminution of economic and fiscal strength consistent with lower rating levels.



Important indicators in this regard include the government&#8217;s ability over the next year or so to contain the impact of global recession on the South African economy and to promote recovery thereafter; to agree and begin to implement the structural reforms that would strengthen the economy. The implementation of the framework for a reliable supply of power to the economy and fiscal reforms to contain expenditure and enhance revenues are important milestones.

Moody’s downgrades SA to junk

JOHANNESBURG (Reuters) &#8211; Moody’s will cut South Africa’s sovereign credit rating later on Friday as a recession deepened by the impact of coronavirus frustrates economic reform efforts aimed at reducing government debt, a Reuters poll of economists found.



Taken in the last three days, the survey showed 12 of 18 respondents saying Moody’s, the only major credit rating agency that still rates South Africa’s bonds as investment-grade, will cut them to “junk” status. Standard &amp; Poor’s and Fitch both cut their ratings to junk nearly three years ago. 



Eleven economists who answered an extra question said the rating was “still relevant” despite a punishing market sell-off that has overshadowed the long-awaited decision, while five said it was “important”. Only two said whether or not Moody’s downgrades the bonds to junk was “irrelevant.” 



“It may not be a market-moving event at this juncture but is important going forward as sub-investment grade from all three rating agencies will undoubtedly raise the cost of capital or funding in South Africa,” said economist Hugo Pienaar at the Bureau for Economic Research. 



The rand, stocks and bonds have been under intense pressure as the pandemic hits asset prices. But many analysts say South African assets have been trading as though they are junk-rated for at least a couple of years already. 



“In our view, the Moody’s downgrade itself has for some time been discounted by financial markets, though it remains uncertain exactly what impact the subsequent World Government Bond Index (WGBI) expulsion will have,” said Elna Moolman, economist at Standard Bank. 



“Guided by global examples in this regard, it is possible that the bulk of the repricing has already occurred.” 



With the virus still spreading, in a worst-case scenario, median forecasts showed South Africa’s economy would shrink by 4% in Q1, 8% in Q2 and 5% in 2020 as a whole, according to the median forecasts from answers to an additional question. 



The last Reuters poll prior to the announcement of the 21-day lockdown for South Africa that started on Thursday evening predicted the economy would shrink 0.4% in Q1, then grow 0.9% in Q2 and 0.3% for the year as whole. 



“As the country enters a minimum of a three-week lockdown period it means domestic fiscal metrics are likely to get significantly worse this year, with sovereign debt ratios now almost certain to rise,” said Jeffrey Schultz, economist at BNP Paribas.



South African assets recovered on Wednesday after the central bank launched a bond-buying programme, seeking to drum up demand in credit markets as the coronavirus epidemic weighs on the ailing economy. 



Christopher Shiells at Informa Global Markets said a downgrade to junk status would probably be seen as a relief by the government as it would free it up to make a significant fiscal response to the crisis. 



“Rating agencies are expected to downgrade a number of sovereigns due to the coronavirus. Outflows and asset weakness have been occurring over last month, so the worst has already happened in that sense,” he said. 



(Editing by Ross Finley and Catherine Evans)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21E150-OZABS</a> and is republished with its permission.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

Moody’s to cut South Africa’s sovereign credit rating to junk – economists

15000

FirstRand CEO on why it expects earnings to slow & covid-19

KEY POINTS



<ul><li>The South African rand plunged over 4% against the dollar to R16.28, as it reported <a href="https://www.cnbcafrica.com/article/2020/03/07/sas-richest-province-reports-first-case-of-covid-19/">three cases</a> of covid-19 and <a href="https://www.cnbcafrica.com/coronavirus/2020/03/06/moodys-cuts-sas-growth-forecast-on-the-back-of-coronavirus/">Moody&#8217;s cut its growth forecast</a>. </li><li>The Australian dollar fell as much as 2.60% against the greenback to $0.6476, while the New Zealand dollar tumbled by as much as 2.28% to change hands at $0.6228.</li><li>The Korean won declined more than 1% against the dollar, prompting South Korea’s finance ministry to issue a verbal warning against “excessive” movements in the currency market, according to a Reuters report.</li></ul>



<a href="https://www.cnbc.com/weizhen-tan/">By Weizhen Tan</a><a rel="noreferrer noopener" href="https://twitter.com/weizent" target="_blank">@WEIZENT</a> Major Asia Pacific currencies dropped against the U.S. dollar on Monday morning, as investors took a risk-off approach with volatility across markets shooting up over an oil price war.



The&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=AUD=">Australian dollar</a>&nbsp;fell as much as 2.60% against the greenback to $0.6476, while the&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=NZD=">New Zealand dollar</a>&nbsp;tumbled by as much as 2.28% to last change hands at $0.6228.



The&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=KRW=">Korean won</a>&nbsp;declined more than 1% against the dollar, prompting&nbsp;<a href="https://www.cnbc.com/korea/">South Korea’s</a>&nbsp;finance ministry to issue a verbal warning against “excessive” movements in the currency market, according to a Reuters report.



“We’re closely monitoring speculative transactions that seems to be taking advantage of unstable market sentiment. The herd-like behavior (in the won) seems excessive short-term,” a finance ministry official told Reuters. Investors tend to regard phone messages from foreign exchange authorities as official verbal interventions in the onshore currency market, according to Reuters.



Meanwhile, investors flocked to the safe-haven&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=JPY=">Japanese yen</a>&nbsp;which soared more than 3% against the dollar to last settle at 102.10, dramatically strengthening from levels above 108 early last week.



But&nbsp;<a href="https://www.cnbc.com/japan/">Japan’s</a>&nbsp;Finance Minister Taro Aso warned against investors rapidly driving up the yen, saying the government will watch the currency spike closely, describing them as “nervous moves,” according to Reuters.



“We must watch currency and stock market moves for a while. We’ll examine&nbsp;them carefully,” Aso told reporters, according to the report. He declined to comment on whether Japan needs to intervene in the currency market.



Turmoil across markets spiked on Monday during Asia hours.&nbsp;<a href="https://www.cnbc.com/2020/03/08/oil-plummets-30percent-as-opec-deal-failure-sparks-price-war-fears.html">Oil prices plunged as much as 30%</a>, with&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=@CL.1">U.S. West Texas Intermediate crude futures&nbsp;</a>briefly falling to $27.95 per barrel. It came&nbsp;after OPEC’s failure to strike a deal with its allies regarding production cuts. That caused&nbsp;<a href="https://www.cnbc.com/id/10000304">Saudi Arabia</a>&nbsp;to slash its prices as it reportedly gets set to ramp up production, leading to&nbsp;<a href="https://www.cnbc.com/2020/03/08/opec-deal-collapse-sparks-price-war-20-oil-in-2020-is-coming.html">fears of an all-out price war</a>.



Dow futures followed the same trajectory,&nbsp;<a href="https://www.cnbc.com/2020/03/09/10-year-treasury-yield-plunges.html">tumbling more than 1,000 points, with the 10-year Treasury yield dropping below 0.5%</a>&nbsp;for the first time ever as price war fears coupled with coronavirus concerns sent investors flocking to safety.



<a href="https://www.cnbc.com/2020/03/09/asia-markets-oil-prices-coronavirus-currencies-in-focus.html">Markets across Asia dived</a>&nbsp;on Monday morning.&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=.N225">Shares in Japan</a>&nbsp;plummeted more than 6%, while Hong Kong’s&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=.HSI">Hang Seng index</a>&nbsp;dropped almost 4%.&nbsp;<a href="https://www.cnbc.com/quotes/?symbol=.KS11">South Korea’s markets</a>&nbsp;declined more than 4%.



<a href="https://www.cnbc.com/australia/">Australian</a>&nbsp;markets also tumbled nearly 6%, with energy stocks taking a beating.



— CNBC’s Pippa Stevens and Yun Li contributed to this report.



This article first appeared on CNBC <a href="https://www.cnbc.com/2020/03/09/asia-pacific-fx-australian-dollar-new-zealand-dollar-korean-won-tumble.html">https://www.cnbc.com/2020/03/09/asia-pacific-fx-australian-dollar-new-zealand-dollar-korean-won-tumble.html</a> and is republished with its permission

Currencies in South Africa, South Korea, Australia and New Zealand crumble as market volatility shoots up

By Moody&#8217;s 



Summary » The global spread of the coronavirus is resulting in simultaneous supply and demand shocks. We expect these shocks to materially slow economic activity, particularly in the first half of this year. We have therefore revised our 2020 baseline growth forecasts for all G-20 economies. We expect these countries, as a group, to grow by 2.1% in 2020, 0.3 percentage point lower than our previous forecast. We have lowered our 2020 forecast for China&#8217;s growth to 4.8% from our previous estimate of 5.2%. For the US, we now expect real GDP to grow by 1.5% in 2020, down from our previous estimate of 1.7%. » The full extent of the economic costs will be unclear for some time. Fear of contagion will dampen consumer and business activity. The longer it takes for households and businesses to resume normal activity, the greater the economic impact. » Global recession risks have risen. The longer the outbreak affects economic activity, the demand shock will dominate and lead to recessionary dynamics. In particular, a sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics. Heightened asset price volatility would magnify the shock. » Fiscal and monetary policy measures will likely help limit the damage in individual economies. Policy announcements from fiscal authorities, central banks and international organizations so far suggest that policy response is likely to be strong in affected countries. The US Federal Reserve’s decision to cut the federal funds rate by 50 basis points and the announcements from the European Central Bank and the Bank of Japan assuring policy support will limit global financial market volatility and partly counter the tightening of financial conditions.



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Moody’s cuts SA’s growth forecast on the back of Coronavirus

By Kopano Gumbi, CNBC Africa markets reporter 



The national treasury has acknowledged that the risk to South Africa remaining investment grade has become more pronounced. A sharp increase in borrowing requirements, unstable electricity supply and reduced tax revenue collections have put strain on the nation’s fiscal position. 



<a href="https://www.cnbcafrica.com/insights/budget-day/2020/02/26/budget2020-sas-finance-minister-tito-mbowenis-full-speech/">READ:#Budget2020: SA’s Finance Minister Tito Mboweni’s full speech</a>



In the last year alone, the government’s gross borrowing
requirements increased by 21.4 percent to R407 billion. The government’s debt
requirements over the next two years will reach nearly R500 billion. The debt
to GDP ratio continues to rise, it is expected to be 65.6 percent of GDP by the
end of 2020/21.



“Although our budget deficit rises to 6.8 percent, we are nevertheless determined to bring it back,” asserts Mboweni.



READ:<a href="https://www.cnbcafrica.com/article/2020/02/26/budget2020-south-africans-get-a-tax-break-public-sector-wage-bill-cut/">#Budget2020: South Africans get a tax break; public-sector wage bill cut</a>



The majority of South Africa’s debt is through domestic loans but as the national treasury has stated, debt is not expected to stabilise over the medium term. A change in the country’s sovereign rating to sub-investment grade would lead to short-term volatility in the financial markets, including an increase in borrowing costs and exchange rate depreciation. The government is of the view that this would unlikely affect its ability to finance its medium-term borrowing requirements.



In trying to exercise more financial prudence, the
government would need to demonstrate that it has a handle on its state-owned
entities. According to government, it has allocated R162 billion to aid
financially stressed companies over the last 12 years. SAA, SA Express, SABC,
Denel and Eskom have been the biggest drain on the state’s resources. Eskom,
the embattled power utility, has received the lion’s share of this assistance.
The total debt of these entities amounts to R760 billion, with 62 percent
guaranteed by government. 



“Over the next three years, debt repayments total R178.1 billion,
of which R103.5 billion is held by Eskom,” estimates government. 



In the coming financial year, government has committed to
provide SAA with an additional R16 billion bailout over the medium term, even
though the company is in voluntary business rescue.



Eskom, which has debt of R450 billion, has received hundreds
of billions from the government and many proposals have been put forward to
assist the ailing power utility. Including, most recently, a proposal to use
the Public Investment Corporation as an investment vehicle. 



Minister Mboweni didn’t scoff at the idea of using public
funds to pay off a large portion of Eskom’s debt, saying that it was not a bad
idea.



“We must be clear that it’s not only public-sector pensions that will be used,” Mboweni said in an address ahead of the budget speech. “If we are going to use pensions, it must be all of our pensions.” This would include private pension funds. The minister outlined that discussions around this are developing and that role-players, in government and in the unions, are coming around to the idea. Mboweni said that this would now introduce the idea that public sector investment could start to happen in Eskom, a point that has been highly contested.

#Budget2020: Risk of SA remaining investment grade by Moody’s has become more pronounced

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Fears of an economic catastrophe if Moody’s downgrades South Africa to junk status after the national budget are misplaced. This is according to Andrew Bahlmann, CEO of Deal Leaders Africa who says despite a potential downgrade, the wheels of the country&#8217;s economy will keep turning. He joins CNBC Africa for more.

Should SA have downgrade fears?

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Uganda and Tanzania are the latest East African economies that are being affected by locust swarms. For months, Ethiopia, Kenya, and Somalia have been ravaged by locust swarms which have decimated crops and risk reducing economic growth, creating inflationary pressures, and increasing food insecurity in the agriculture-dependent East African region but is there cause for alarm? CNBC Africa&#8217;s Arnold Kwizera spoke to Kelvin Dalrymple, the Vice President of Moody&#8217;s for more on this.

Uganda

Uganda, Tanzania latest to be affected by locust swarms – how will this impact food security & EA economies?

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The rand remains weak against the dollar after ratings agency Moody’s cut its forecast for South Africa’s economic growth, raising fear through the markets that we are due for a downgrade. The Moody’s report also cited a decrease in its growth forecast for China to 5.2 per cent as the coronavirus takes a knock on global growth expectations. Moody’s has noted the Covid-19 impact on Chinese markets but how JSE listed companies exposed to Chinese markets reacting to the epidemic, joining CNBC Africa is Jean Pierre Verster, CEO at Protea Capital Management.

These are the JSE listed stocks to shot over COVID-19

These are the JSE listed stocks to short over COVID-19

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Moody&#8217;s says the drop in the non-performing loans which follows a recent clean-up and recapitalisation exercise is credit positive for Ghana&#8217;s banking system. Christos Theofilou, Vice President and Banking Analyst at Moody&#8217;s joins CNBC Africa for this discussion.

Moody’s: Lower NPLs credit positive for Ghana’s banks

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The Land Bank&#8217;s debt has become more expensive with Moody’s downgrading the bank to junk status. The credit ratings agency said this was due to the unlikeness of the South African government being able to support the Development Finance Institution in time of need. Joining CNBC Africa to discuss what this means is Sydney Soundy, Acting Chief Executive Officer of the Land Bank.

Downgrade material for Land Bank

Downgrade material for Land Bank, to consult lenders

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As global tensions are on the rise and a Moody’s credit rating downgrade looms on South Africa – Maarten Ackerman, Chief Economist and Advisory Partner at Citadel joins CNBC Africa for an investors’ guide to 2020.

Maarten Ackerman’s insights on what should guide investors guide in 2020

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Rating agency, Moody’s changed its outlook on the government of Nigeria’s B2 rating to negative from stable last week. Aurelien Mali, Vice President and Sovereign Analyst at Moody&#8217;s joins CNBC Africa from Dubai to discuss the reasons behind the negative outlook.

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COVID-19 will see more demand from banks – Nedbank CEO

South Africa’s rand crashes to its lowest ever after Moody’s pulls the plug

Moody’s downgrades SA to junk status – what does this mean for the economy?

Government’s response to Moody’s downgrade of SA to junk status

Moody’s downgrades SA to junk

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FirstRand CEO on why it expects earnings to slow & covid-19

Currencies in South Africa, South Korea, Australia and New Zealand crumble as market volatility shoots up

Moody’s cuts SA’s growth forecast on the back of Coronavirus

#Budget2020: Risk of SA remaining investment grade by Moody’s has become more pronounced

Should SA have downgrade fears?

Uganda, Tanzania latest to be affected by locust swarms – how will this impact food security & EA economies?

These are the JSE listed stocks to short over COVID-19

Moody’s: Lower NPLs credit positive for Ghana’s banks

Downgrade material for Land Bank, to consult lenders

Maarten Ackerman’s insights on what should guide investors guide in 2020

Moody’s clears air on Nigeria’s negative rating outlook

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