SA economy is running out of road - economist

Johannesburg - South Africa is on a “knife edge” when it comes to the risk of a rating downgrade to junk status, according to Standard Bank chief economist Goolam Ballim.

Rating agencies are set to review South Africa towards the middle and end of 2017, as the country stares down the barrel of a downgrade amid a sluggish economy and political woes.

South Africa’s economy struggled to grow past 1% in 2016, according to estimates from the likes of the Reserve Bank.

Meanwhile, political uncertainty has further spilled into the economic landscape, with questions over whether Finance Minister Pravin Gordhan could face the axe amid a Cabinet reshuffle.

READ: No change in South Africa's credit rating - Moody's

Currently, Moody’s has South Africa two notches above sub-investment grade, with a negative outlook. S&P and Fitch have South Africa one notch above junk.

"We're running out of road,” Ballim told Fin24.

“The rating agencies are almost obliged to make a decision in 2017 with respect to our credit standing. We are in the transit station.

“When you are on negative watch, you are effectively waiting for a final verdict and the final verdict either returns you to a stable outlook or you subordinate to negative watch,” Ballim added.

READ MORE: Junk breather for SA, but S&P lowers local currency rating

Ballim further said that South Africa’s window to deliver is getting smaller.

He said a “decision” regarding South Africa’s credit rating has to be “made either way in 2017 and we think it hangs on a knife edge”.

“The market implied suggestion is that there is a slightly better than even odds chance that we will actually be downgraded,” Ballim told Fin24.

“But I think while that event is still to occur, possibly in November or even in June through S&P's diary, we still have an occasion to deliver,” Ballim added.

Subsequently, rating agencies will be watching the budget speech in Parliament closely next week as well as minimum wage outcomes and the compact between business, labour and government, said Ballim.

“So, I think there's still time to play for and there's play to be had, especially with the social compact between the various entities,” he said.

"There isn't a silver bullet and it isn't up to either one individual or one policy proposal that can be the overarching rescue measure. It requires a sense of stability from labour and a partnership with business.

“It requires business to become far more socially conscious and also contributing to South Africa's growth dynamic with a transformation flavour.

"It requires government, in its broader sense, beyond just the National Treasury to be stability seeking," said Ballim.

The probability of a credit downgrade for South Africa remains on a knife edge. (Supplied)

He said the process is multi-pronged, and that Gordhan will be watched closely next week.

“Clearly, Finance Minister Gordhan and the budget are in the top tier of stabilising forces and I think he will continue to hold sway, as he has thus far,” said Ballim.