World Economy

South Africa to Remain in Low-Growth Trap

South Africa to Remain  in Low-Growth TrapSouth Africa to Remain  in Low-Growth Trap

The steep decline in South Africa's business confidence is a setback to economic growth recovery and will dampen investment, ratings agency Moody's said on Monday, after Africa's most industrialized economy slumped to a recession.

South African business confidence fell in the second quarter to a level not seen since the 2009 recession, a survey showed last week, as concerns over politics weighed, Reuters reported.

"Reduced business confidence implies reduced investment, which would negatively affect growth in South Africa’s already-weak economy, and will ultimately make fiscal consolidation more challenging," Moody's senior analyst Zuzana Brixiova said in a research note.

"Without improved trust in policymaking, it is likely that South Africa will remain in a low-growth trap," Brixiova said.

South Africa entered recession for the first time in eight years in the first quarter, data showed on June 6, putting pressure on the government just as it must cope with credit downgrades.

Moody's lowered South Africa's rating to the bottom of the investment grade table with a negative outlook on June 9, citing a recent abrupt cabinet reshuffle and reduced growth prospects for the economy.

S&P Global Ratings and Fitch rate South Africa as "junk".

Finance Minister Malusi Gigaba said on Thursday the treasury was looking for ways to cut government spending further and reallocate funds to help boost growth while maintaining its fiscal target.

Gigaba last week acknowledged that the new Mining Charter had triggered a storm and said he hoped it would not weaken the recession-hit economy further. He said that South Africa would not realize the 2017 growth projection of 1.3% due to a series of negative developments.

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