Johannesburg - South Africa posted a smaller current-account deficit than economists estimated in the first quarter, giving the rand some temporary relief.
The gap on the current account, the broadest measure of trade in goods and services, eased to 4.8 percent of gross domestic product from 5.1 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released on Tuesday in the capital, Pretoria. The median estimate of 20 economists in a Bloomberg survey was for the shortfall to stay unchanged.
The current-account gap has been a source of weakness for the rand and the improvement last quarter may help to support the currency after it depreciated 4.8 percent against the dollar this year. The smaller deficit was mainly due to a decline in dividend payments to foreign investors, which offset a slump in exports as power shortages and weak global demand curbed manufacturing and mining output.
“The rand is likely to react relatively favourably to a slightly narrower current account deficit but I don’t think the vulnerabilities regarding the currency have really disappeared,” Jeffrey Schultz, an economist at BNP Paribas Cadiz, said by phone from Johannesburg. “We are still running a deficit that is close to 5 percent of GDP and it still requires a significant amount of financing.”
The rand initially pared its decline after the data was published to 12.1235 against the dollar, before weakening to 12.1378 as of 10:37 a.m. in Johannesburg.
Portfolio inflows
Exports, excluding gold, fell 2.3 percent to an annualised R937 billion ($77 billion) in the three months through March, while imports rose 1 percent to R1.1 trillion, according to the report. Import demand climbed as consumer spending grew 2.8 percent in the first quarter from 1.6 percent in the previous three months, the bank said.
South Africa, which relies mainly on foreign investment in stocks and bonds to help fund its current-account deficit, posted an inflow of R39.3 billion in portfolio investment in the first quarter, compared with an outflow of R16.8 billion in the previous three months. That also helped offset an outflow of R22.2 billion in foreign direct investment, according to the report.
An improvement in consumer spending helped to spur growth in gross domestic expenditure to an annualised 3.4 percent in first quarter from 0.3 percent in the previous three months. Government spending contracted 1.9 percent from a 1 percent gain in the same period, while investment spending growth slowed to 1.8 percent from 2.6 percent.
* With assistance from Simbarashe Gumbo in Johannesburg
Bloomberg