Pretoria - South Africa's current account deficit widened in the third quarter to its biggest in five years despite positive revisions to trade numbers, increasing the economy's vulnerability to external shocks.
Overall spending growth slowed in the quarter, with households constrained by stricter lending and the effect of labour strikes on wages, reducing hopes of a consumer-driven economic recovery in 2013.
Analysts said South Africa was among the most exposed of the so-called “fragile five” economies, which also include India, Turkey, Indonesia and Brazil, with a poor growth outlook and not enough reserves to defend its currency.
South Africa's strong demand for imports came at a higher price in the third quarter because of the weak rand exchange rate, which worsened the terms of trade for Africa's biggest economy.
The current account deficit expanded to 6.8 percent of GDP from a revised 5.9 percent in the second quarter, the largest deficit seen since 2008, the South African Reserve Bank said in its December Quarterly Bulletin on Tuesday.
The Bank had previously reported a 6.5 percent gap in the second quarter.
That shortfall dropped after the revenue service included trade with neighbours Botswana, Lesotho, Namibia and Swaziland, with which South Africa runs a large surplus.
“This quarter's deficit is essentially a stronger deterioration than any seen,” said Anisha Arora of 4Cast, adding that the deficit would remain volatile well into next year.
Excluding trade with neighbouring countries, the deficit would have been more than 7 percent, bank officials said.
The highest deficit in South Africa's recent history was in the third quarter of 2008 when the gap rose to 7.8 percent of GDP.
The bank said the deficit was financed mainly by direct and portfolio investments, which are seen at risk of drying up when the US Federal Reserve begins to scale back its monetary stimulus programme, making the rand more vulnerable.
“The global backdrop, the US Fed and the ongoing mining woes will all contribute to uncertainty and volatility of inflows and outflows to the emerging markets and South African assets,” it said in its quarterly report.
Foreign direct investment almost trebled in the third quarter, resulting in the financial account more than doubling as a proportion of GDP, to 9.5 percent.
The rand retreated after the data and was down nearly 1.2 percent by 13:17 SA time.
The yawning deficit and South Africa's relatively small reserves and weak growth outlook leave the rand exposed.
The spectre of Fed “tapering” has also helped knock the currency about 20 percent lower versus the dollar this year.
Separately, the quarterly bulletin showed spending growth in the economy moderated in the third quarter, with households constrained and the finance ministry putting a lid on increased spending by government departments.
Growth in spending slowed to an annualised 1.9 percent in the third quarter, from 2.7 percent in the second quarter.
Analysts said the downward trend in household consumption expenditure, which makes up a significant proportion of GDP, means overall economic growth is likely to fall short of official forecasts of around 2 percent this year. - Reuters