Nov. 10 (Bloomberg) -- Fitch Ratings revised South Africa's credit rating outlook to negative from stable as part of a review of 17 investment-grade emerging market economies, as the global credit crisis threatens to undermine its currency and cut growth.

The global credit crisis means South Africa is finding it increasingly difficult to fund a current account deficit of more than 7 percent of gross domestic product, putting it at risk of a ``hard landing,'' the ratings agency said in a report today. The country's banking system is ``relatively strong'' and not in need of a government bailout, it added.

``The magnitude of South Africa's current deficit will be difficult to sustain going forward in an environment where portfolio inflows are drying up,'' said Brian Coulton, a credit analyst at Fitch. ``That increases the chances of a hard landing for the economy next year.''

Fitch affirmed South Africa's BBB+ rating, the third-lowest investment-grade level. The ratings company expects Africa's biggest economy to expand between 1 and 2 percent next year, Coulton added. South Africa's National Treasury forecasts 3.7 percent growth this year, 3 percent in 2009 and 4 percent in 2010, Finance Minister Trevor Manuel said on Oct. 21.

``There's a slightly greater-than-even chance South Africa's rating will come under pressure over an 18-month horizon,'' said Coulton. ``But it's by no means a done deal.''

Currency Slump

South Africa's currency has fallen 31 percent this year as investors sold almost 62 billion ($6.3 billion) more than they bought of the country's assets, partly on concern South Africa would struggle to fund its current-account deficit. The shortfall is expected to reach 7.6 percent of gross domestic product this year, according to government forecasts.

``The rand has suffered a huge drop this year and that raises the prospect of inflation staying higher for longer at a time when domestic and international growth is slowing,'' said Coulton. ``That will force the central bank to keep interest rates higher for longer.''

Inflation slowed for the first time in more than a year in September, easing to 13 percent from a record 13.6 percent the previous month, the statistics office said on Oct. 29. Consumer price growth has exceeded the central bank's 6 percent ceiling for 18 consecutive months.

South African Reserve Bank has raised its key interest rate ten times since June 2006 to a five-year high of 12 percent to curb the rate of price growth.

The government will move to a budget deficit in the next fiscal year as the global financial crisis cuts economic growth and the nation ramps up spending to upgrade power supply, roads and ports. The shortfall will reach 1.6 percent of gross domestic product in the year through March 2010, compared with a February estimate of a 0.6 percent surplus, according to the mid-term budget released on Oct. 21.

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net; Vernon Wessels in Johannesburg at vwessels@bloomberg.net

Last Updated: November 10, 2008 06:28 EST