The Moody’s Investors Service summit this week will provide some insight into the credit-rating agency’s prognosis of SA.

Lucie Villa, lead sovereign analyst for SA, will present on SA’s fiscal picture and growth prospects in Johannesburg on Tuesday. The conference will also focus on corporate liquidity risk and banking sector growth.

There are heightened expectations that Moody’s will revise its outlook on SA from stable to negative when it publishes its next report on November 1, which could see the country lose its final investment grade soon after.

A downgrade would trigger mass portfolio investment outflows as investors not mandated to hold subinvestment-grade bonds will have to dump them.

While S&P Global Ratings and Fitch Ratings downgraded SA to junk status in 2017, Moody’s has given the country the benefit of the doubt. SA had a reprieve from Moody’s at the end of March when it did not make a pronouncement on the country. However, SA’s domestic fiscal position has weakened significantly, particularly after additional bailouts to state-owned power utility Eskom.

Tuesday will also see the release of July’s manufacturing production data.

In July, activity among factory owners climbed to its highest level in more than three years, indicating expansion in the manufacturing sector for the first time in 2019.

The seasonally adjusted Absa purchasing managers’ index (PMI) rose to 52.1 points in July from 46.2 in June. The last time the index was this high was in June 2016. It is also the first time in 2019 that the index has breached the neutral 50-point mark; the PMI last came in above 50 in December 2018.

However, the manufacturing sector continues to be burdened by weak consumer demand, fixed investment spend and softening export growth prospects as a result of strained global trade dynamics, Investec economist Lara Hodes said.

On Wednesday the Bureau of Economic Research and RMB will release the business confidence index for the third quarter. The index was at 28 for the first two quarters of this year — below the neutral 50-point mark.

FNB chief economist Mamello Matikinca-Ngwenya expects business confidence to remain in this territory in the third quarter of the year based on little evidence of a meaningful recovery in investment.

Hodes said: “The SA economy remains in a fragile state, operating against a backdrop of subdued activity and persistently low business confidence, which continues to weigh heavily on future growth prospects.

“Furthermore, government finances have deteriorated to the point of risking the loss of SA’s Moody’s investment-grade rating, which would further undermine economic growth.”

On Thursday, Stats SA will release the mining production figures for July. Mining production has contracted on a year-on-year basis since November 2018.

“We are anticipating a pick-up in the pace of mining activity, supported by statistical base effects as well as a lift in commodity prices in July,” Hodes said.​

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