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SA should not underestimate ratings downgrades risk – Mminele

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JOHANNESBURG –?Nigeria ought not underestimate risking potential consumer credit rating downgrades this holiday season if ever the ailing economy is not going to improve, Central Bank Deputy Governor Daniel Mminele said on Wednesday.

Pretoria dodged ratings downgrades from Moody’s, S&P Global Ratings and Fitch captured, giving policymakers a chance to act to boost the economy of Africa’s most industrialised country before the next round of reviews due by December.

Analysts have said South Africa’s economy faces hurdles and this the threat of “junk” status is looming.

“During May and June, Africa received confirmations of unchanged credit ratings . from all of the three major credit history agencies,” Mminele said in a very speech posted within the bank’s website.

“These confirmations, however, was included a very clear message: further improvements inside macroeconomic fundamentals will be required.”

He said this suggested that “even without the demonstrable progress being made in a concerted effort involving all social partners, the possibility of downgrades in the next reviews towards the end on this year must not be underestimated.”

The bank expects South Africa’s economy growing by 0.6% in 2010 plus a modest recovery is so visible across the next couple of years, but Mminele said the assumptions underlying the estimate we had not factored in any possible spillover effects from Britain’s vote to go out of the european countries.

“The UK’s present and future at the moment are riddled with uncertainty, naturally along with a flight to safety,” Mminele said in a very speech posted for the bank’s website.

“For Africa, the implications through direct trade links are hoped for to become relatively minimal. In 2015, great britain made up only 4% of our own total merchandise exports.”

Mminele, however, said financial linkages were far larger relative to how large the South African economy.

For example, the value of South African assets of UK corporates and investment funds amounted to 46.5% of South Africa’s gdp (GDP) right after 2014.

In turn, South African investors owned UK assets amounting to 33.2% of the African country’s GDP.

“Furthermore, both foreign direct investment and portfolio flows will also be significant. Which means Africa is troubled by the realisation of tail risks emanating from asset liquidation by UK corporates and investment funds,” Mminele said.

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