Barclays: SA growth to slump

Johannesburg - UK banking group Barclays plc expects economic growth in South Africa to fall from a projected average of 3.3% for 2008 to just 2.1% in 2009.

In its first annual edition of the South Africa Banks, Corporates and Parastatals Handbook, Barclays says that against a background of the lingering financial market turmoil and global growth averaging closer to 2% than 5% in 2009, there is likely to be a significant decline for South Africa's core resource exports.

"In addition, plummeting business confidence, tighter credit conditions, and a focus on capital preservation are likely to see local corporates reconsider some of their spending plans. Even the large parastatal investment programmes could come under considerable scrutiny in the current financing environment.

"In the baseline scenario, we believe that economic growth will fall from a projected average of 3.3% for 2008, to just 2.1% in 2009," Barclays adds.

It notes that for South Africa, the debt capital market has remained an important source of funding for several banks, corporates and parastatals during the year but that "the current lack of clarity and certainty regarding the future availability of credit introduces an element of risk into debt financing as we look into 2009".

"The increasingly uncertain global economic outlook on the back of continued financial system stress and consequent credit market sell-off sharply raises the importance of fundamental credit analysis.

"Lending between SA banks has continued and remains relatively stable as has bank bond issuance. This is not to say that they have fully escaped the negative offshore sentiment, as evidenced by widening funding spreads.

Furthermore, one SA bank was recently downgraded and the bulk of others' ratings are on negative credit outlooks," the UK banking group states.

"In terms of SA corporates, we have yet to see the full effect of the strained bigger macro picture. This does not bode well for the outlook for ratings. Several corporates are already currently on negative credit outlooks with common themes being high short-term debt as a percentage of total debt as well as exposures to the automotive sector.

"Positively, corporate issuance has continued, albeit at increasingly higher issue spreads. Furthermore, shorter-tenor floating rate notes have replaced the longer-dated fixed rate note issues of late. Fortunately, redemptions are limited in 2009 thereby reducing forced re-financing risk for existing corporate issuers.

"Spending on infrastructure by the SA parastatals should shore up continued issuance from names such as Eskom and Transnet. However, with the offshore markets essentially shut, funding (supply and pricing) pressures in the local market will increase and increased support from the government may prove necessary," Barclays adds.

- I-Net Bridge