South Africa is weathering the global recession and credit crunch "quite well" compared with its rating peers, ratings agency Fitch Ratings said on Monday.

This was despite its predictions that the country's gross domestic product (GDP) would fall by 1% to 2% this year, it said in a statement.

Political risk had also eased since April's smooth transfer of power to President Jacob Zuma.

"However, the postelection political landscape and its implications for policy is still unfolding, at a time when the budget deficit is rising sharply and the current account deficit, while diminished, remains large and presents continuing financing challenges."

On Monday, Fitch Ratings affirmed the country as 'BBB+' (lower medium grade) but said the outlook remained negative.

"South Africa's ratings have been on negative outlook since November 2008 when Fitch took negative rating action on a number of major emerging markets in the face of the sudden and fast deterioration of the global economic environment in the second half of last year."

South Africa had been affected mainly through trade and capital flows channels - investors pulled a lot of money out of the stock market in the fourth quarter of 2008. There was also a sharp weakening of the currency.

Though flows into the stock market had since returned and the rand had recovered most of the ground lost since March 2009, the combined impact of the global recession and a domestic cyclical downturn would be more "broadly" felt in 2009.

The budget deficit could approach 6% of GDP in the current fiscal year and remain high, albeit declining, in the next two years.

Fitch expected the government debt ratio to rise from a low of 27% in the fiscal year 2008 to around one-third by the fiscal year 2010.

Several years of prudent fiscal policy had given South Africa fiscal space to weather a temporary increase in the budget deficit,
Fitch added.

However, the increase in debt of the broader public sector, which included non-financial public enterprises, would be much starker, as infrastructure spending was stepped up.