SA’s current-account gap near low

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Filomena Scalise

Johannesburg - South Africa posted its smallest current-account deficit in almost two years in the fourth quarter of last year as stronger global demand and a weaker rand helped to boost exports.

The gap on the current account, the broadest measure of trade in goods and services, shrank to 5.1 percent of gross domestic product from a revised 6.4 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released today in the capital, Pretoria.

The median estimate of 15 economists in a Bloomberg survey was 5.5 percent.

The shortfall reached an annualised 179 billion rand in the period.

Exports rebounded in the fourth quarter after the end of labor strikes at carmakers and mines that disrupted production, helping to boost the trade account into surplus in the final two months of last year.

The rand slumped 19 percent against the dollar last year, the worst performance among 16 major currencies tracked by Bloomberg, helping to improve the competitiveness of exports as global demand recovered.

“The fall in the rand is starting to dampen imports, especially of consumer goods, because it’s starting to drive up prices,” Azar Jammine, chief economist at Johannesburg-based Econometrix, said after a briefing at the central bank today.

“On the other hand, it’s starting to help the productive side of the economy.”

The rand fell 0.7 percent against the dollar to 10.9278 as of 11:07 a.m. in Johannesburg.

 

Foreign Inflows

 

South Africa’s dependence on short-term foreign capital inflows to finance the deficit means the current account remains a risk, Ulrich Joubert, an independent economist, said after the bank’s briefing on its report.

Portfolio investment by non-residents recorded an outflow of 30.8 billion rand in the fourth quarter, while foreign direct investment slumped to 4.1 billion rand from 47.4 billion rand in the third quarter, the bank said.

“Several emerging-market economies with large current- account deficits recently experienced significant currency depreciations and heightened inflation,” the Reserve Bank said.

“Domestically, lingering labor market tensions, weak economic growth and the current-account and fiscal deficits may have added to the shift in sentiment regarding emerging markets.”

An extended strike in the platinum industry will probably curb exports and widen the current-account gap, said Stefaans Walters, a deputy head of research at the Reserve Bank.

 

Spending Slumps

 

South African companies must export more to close the current-account gap, Finance Minister Pravin Gordhan told lawmakers in Cape Town yesterday.

The country has had a deficit on its current account for more than 10 years.

“I don’t see the current-account deficit coming down below 4 percent of GDP,” Jammine said.

“That means I can’t see the rand appreciating much.”

Spending in the economy fell an annualised 3.6 percent in the fourth quarter compared with a drop of 0.8 percent in the previous three months, the bank said.

Household expenditure growth eased to 2 percent from 2.1 percent, while investment growth slowed to 3.1 percent from 7 percent. - Bloomberg News


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