Moody’s says South Africa’s political tensions constraining growth as rand steadies ahead of retail sales

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  • South Africa’s retail sales up 2.9 percent year/year in June

JOHANNESBURG  – Political tensions in the ruling African National Congress (ANC) will weigh on South Africa’s growth, ratings agency Moody’s said on Wednesday, a week after President Jacob Zuma survived a no-confidence vote in parliament.

The no-confidence vote showed that support among ANC lawmakers for Zuma is on the wane, increasing the chances of political turmoil within the party that could play into the race to select his successor at a party conference in December.

With the economy back in recession and questions about the credibility of its institutions intensifying, the risk of Africa’s most industrialised economy losing its remaining investment grade credit rating from Moody’s has grown.

“Key constraints to growth are domestic, including political tensions and policy uncertainty,” the ratings agency said in its credit opinion statement on South Africa.

In June, Moody’s cut South Africa’s debt by a single notch after Zuma abruptly fired widely respected Pravin Gordhan as finance minister.

The country has been dropped from the JP Morgan Emerging Market Bond Index Global following downgrades to “junk” status by S&P Global Ratings and Fitch in April.

S&P and Fitch kept their ratings unchanged at BB+ at scheduled debt reviews following the unscheduled downgrades but both have warned of deeper cuts if policy uncertainty continues to hamper economic reforms.

Since Gordhan’s removal, calls for Zuma to step down have intensified from within his party, which has ruled since 1994 when apartheid fell.

Moody’s said in the statement that South Africa’s economy would grow by 0.5 percent this year and 1.2 percent in 2018.

In a no-confidence motion in Zuma held through a secret ballot in parliament last week, about 30 ANC members broke ranks and sided with opposition parties to remove Zuma.

“The results reflect the rising political tensions within the ruling party in the run up to the leadership conference of the African National Congress in December 2017,” Moody’s said.

Allegations of corruption against Zuma in the awarding of government contracts at state firms worth billions of dollars have also dented investor confidence and raised the threat of downgrades as political infighting distracts from the economy.

The reports, denied by Zuma, are based on leaked emails and have drawn several international firms into a scandal that has widened divisions the ANC and prompted senior politicians to call for Zuma’s resignation.

RAND steadies

MEANWHILE South Africa’s rand steadied against the dollar early on Wednesday ahead of retail sales figures that should give more clues to the health of the economy in the second quarter.

At 0645 GMT, the rand traded at 13.3100 per dollar, from its overnight close of 13.3150 on Tuesday.

South Africa’s June retail sales figures are due at 1100 GMT and analysts forecast a year-on-year rise of 2.2 percent after sales increased 1.7 percent in May.

South Africa entered recession for the first time in eight years after the economy contracted in the first quarter, led by weak manufacturing and trade.

Market focus also on minutes from the U.S. Federal Reserve’s July meeting that will be released later on Wednesday, and will be watched for clues on the timing of rate hikes.

Stocks were set to open higher at 0700 GMT, with the JSE securities exchange’s Top-40 futures index up 0.47 percent.

In fixed income, the yield for the benchmark government bond due in 2026 was flat at 8.585 percent.

  • South Africa’s retail sales up 2.9 percent year/year in June

ALSO  South African retail sales rose by 2.9 percent year-on-year in June, above market expectations, after increasing by a revised 1.6 percent in May, data from the statistics office showed on Wednesday.

Analysts polled by Reuters had forecast a 2.2 percent year-on-year increase in retail sales in June.

On a month-on-month basis, sales inched up 0.2 percent and were up 2.2 percent in the three months to June compared with the same period last year, Statistics South Africa said.

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