IMF lowers South Africa 2016 growth forecast to 0.1 percent, could trigger a rating downgrade

The International Monetary Fund cut its forecast for 2016 economic growth in South Africa to 0.1 percent from 0.6 percent in the previous estimate. The forecast compared with 1.3 percent forecast in the month of October. Political developments, have heightened governance concerns and policy uncertainty, the IMF said.

South Africa's economy contracted 1.2 percent in the first quarter as mining and farming output slumped due to low mineral prices and the worst drought in more than a century. South Africa's Reserve Bank said in May the economy will expand by 0.6 percent this year and the National Treasury forecast growth of 0.9 percent in February.

The cut in the growth forecast “doesn’t really spell very good news for the ratings outlook, because as we know ratings agencies have consistently flagged the lack of growth in the economy as one of the key ratings risks for South Africa,” Jeffrey Schultz, a senior economist at BNP Paribas Securities.

S&P Global Ratings had on June 3 affirmed South Africa at the lowest investment-grade level and noted that South Africa needs to implement structural reforms to boost the economy, such as more flexible labor laws, to avoid its credit rating being cut to junk.