S&P cuts South Africa rating outlook to negative

Ratings agency Standard & Poor’s on Wednesday cut South Africa’s outlook from ‘stable’ to ‘negative,’ citing slow economic growth and persistently high unemployment rates.

“The negative outlook reflects the potential for a downgrade if economic and social problems feed into the political debate in the run-up to the 2014 national and provincial elections and consequently further put pressure on the policy framework,” S&P said in a statement.

It noted the moderate fiscal and external debt, which has given the country fiscal flexibility and helped South Africa weather the recent global downturn.

“However, fundamental structural economic and social problems, such as low per capita growth estimated at 2.1 percent in 2012 and very high unemployment rates, persist, and South Africa’s structural current account deficit makes the economy dependent on external financing,” it said.

Official statistics put unemployment at 23.9 percent. Last year the economy grew 3.1 percent, against 2.9 percent in 2010.

“We could lower the ratings if South Africa’s economic disparities and social development needs persist, with the economy increasingly failing to generate the jobs required by an expanding labor force,” it said.

The downgrade comes three months after Fitch also revised the outlook of Africa’s biggest economy from stable to negative for similar reasons.