A prolonged strike in the platinum mining sector, as well as weak domestic and external demand, has led to a contraction in GDP in the first quarter of 2014 and is likely to depress second-quarter and full-year GDP growth rates and reduce South Africa's fiscal flexibility. In addition, current account deficits are relatively high, and their financing relies on potentially volatile capital flows. We are therefore lowering the long-term foreign currency rating on South Africa to 'BBB-' from 'BBB' and the long-term local currency rating to 'BBB+' from 'A-'. The stable outlook reflects our view that current labor tensions will be resolved and that lackluster economic performance will not affect South Africa's fiscal and external balance beyond our revised expectations.
