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Cape Town - South Africa is probably safe from a ratings agency downgrade in December and there will be no imminent rating downgrade to junk status, in the view of economist Sanisha Packirisamy of MMI.
At the same time SA's low economic growth and the 10.1% public sector wage deal - meaning a R63.9bn overrun - pose risks to medium-term fiscal consolidation.
"We are slightly more bearish about emerging markets and think there is some scope for downgrades to come through in coming months," she cautioned.
Headwinds for emerging markets are muted global trade - due to weak commodity prices - slowing domestic demand and tight financial conditions.
She warned that SA's revenue targets look too optimistic in the light of muted growth prospects and thinks Treasury is especially over-optimistic about company taxes it will collect.
READ: Risk of junk will heighten at end of 2016 - economist
On the expenditure side she is worried about the government's inability to kick in its heels and resist the wage bill increase, which accounts for an unhealthy portion of total expenditure, in her view. As a result the debt-servicing burden is becoming a growing share of total expenditure.
As for the global outlook, Packirisamy said growth fears about China is "overdone". Although China's GDP is expected to slow to about 6.5% in the 2015/2016 financial year, sequential growth improvement is expected and the services sector is upbeat.
She said there are flaws in the argument that China's growth could be only 3% as these estimates do not include the services component, which is now about 50% of the Chinese economy, up from 30%.
In the US robust growth recovery and stable inflation expectations have led to an estimate that there is now a 70% chance of the US Federal Reserve hiking interest rates in December.
"We still think it will be a slow, protracted hike cycle in the US. The reasons why only a modest rate hiking cycle is expected in the US are low wages, a firmer dollar, tighter monetary conditions and global financial or economic instability," said Packirisamy.
In the UK she expects firm growth due to consumer spending and business investment, despite temporary inflation weakness. She expects the Bank of England to follow a gradual hiking cycle once the Fed has made its move in that direction.
In the eurozone she expects positive short-term gross domestic product (GDP) prospects and, although "Grexit" fears have receded for the time being, quantitative easing is unlikely to end early in her view.
In Japan there is subdued growth due to disappointing exports despite weaker yen. Deflation fears linger and further stimulus is likely.
