What the downgrade means for you

Eyewitness News helps you understand what the ratings downgrade means and why you should care.

Picture: sxc.hu

JOHANNESBURG – Standard & Poor’s Global Ratings' has downgraded South Africa's credit rating to junk status and Moody’s has moved to put the country's credit rating on review for a downgrade, but what does this mean for you?

Rian le Roux, head of economic research at Old Mutual Investment Group, says the poor will be affected the most.

But how will the poor, the middle class and everybody else be affected? Eyewitness News will help you understand what this all means and why you should care.

The first thing is that the rand will weaken and interest rates will remain high and as a result, the following will most likely happen:

• When it comes to repaying your debt (home loans, car repayments), if inflation stays high, the Reserve Bank can’t lower interest rates. You may pay more to repay your debt in the second quarter.
• Your pension fund is safe. For now.
• You will experience slower income growth, meaning your salary increases don’t look that good because economic growth does not look good.
• If you are looking for a job it will be harder to find one because the job market is now at risk.
• Jobs are also at risk; some sectors might experience a lot of retrenchments.
• Investments, over time, will not grow because the prospects for prosperity have been dimmed by the downgrade.

Goolam Ballim, Standard Bank Chief Economist, adding to the conversation says it will be difficult for South Africa to get out of this ratings downgrade because of our political instability.

“We are hamstrung by a toxic political environment.”

Ballim argues that the financial system is founded on trust and when President Jacob Zuma went ahead with the Cabinet reshuffle, he breached that trust.

“When he removed Pravin Gordhan, while this is not necessarily an indictment on his successor, unfortunately, Minister Malusi Gigaba does not have the credentials to be able to inject that trust.”

There is a severe impact all round and there may be more bad news on its way, so prepare to tighten your financial belt even more.