Johannesburg - The rand tumbled yesterday after data showed the current account deficit widened in the first quarter as exports slumped, despite a recovery in the global prices of commodities and a weaker rand.
The rand fell as much as 1.5 percent against the dollar to its lowest on a closing basis since June 2. By 5pm the currency was quoted at R15.3222 to the greenback.
The current account deficit widened to 5 percent of gross domestic product from a revised shortfall of 4.6 percent in the final quarter of 2015, the Reserve Bank said yesterday. This was higher than the market consensus of 4.3 percent.
The trade deficit narrowed to a seasonally adjusted R38 billion from R41bn, while the net transfers deficit widened to R174bn from R150bn.
Earlier before the release of the figures, John Cairns, a currency strategist at Rand Merchant Bank, said the current account was a vital part in understanding the economy.
“Specifically, in a South African context, the deep hole of a deficit shows that the country continues to import more than it exports, invests more than it saves, and generally lives beyond its means,” he said. “This is clearly unsustainable, although the country has managed to do so continuously since 2003 – an almost unprecedented instance in global history.”
Little improvement
Kamilla Kaplan, an economist at Investec, said South Africa’s export growth potential was being partially curtailed by subdued global trade volume growth, with leading authorities such as the International Monetary Fund, World Bank and Organisation for Economic Co-operation and Development projecting little improvement in the year ahead.
However, she said, there was still scope for South Africa’s export growth to continue exceeding import growth in the months ahead as constrained household consumption expenditure and depressed investment rates contributed to slower import growth of consumption and capital goods.
Kaplan said the widening in the current account deficit in the first quarter was, therefore, a function of a substantial increase in the services, income and current transfer account deficit to R174bn, from a shortfall of R150bn in the fourth quarter of 2015. In turn, the increase in this deficit stemmed mainly from increased payments on investment related flows. She said in particular, portfolio investment payments rose 7.7 percent year on year in the first quarter, reflecting the lagged effects of portfolio inflows in prior quarters
.
Nedbank said the outlook for the economy remained relatively bleak, but the current account deficit was expected to narrow this year.
* With additional reporting by Reuters
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