File photo: Reuters

Johannesburg - The Reserve Bank’s latest Quarterly Bulletin, released yesterday, paints a mixed picture of the economy, showing a narrower deficit for the fourth quarter along with signs of further dislocation in household consumption.

The bank reported that the country’s current account deficit narrowed to 5.1 percent of gross domestic product from a revised 6.4 percent in the third quarter of last year, news that should have cheered the rand but did not.

The currency slid amid the worrying backdrop of an unresolved platinum industry strike, concerns about power supply and worries about a potential slowdown in China, the leading consumer of South Africa’s mineral exports.

The rand hit an intraday low of R10.96 against the dollar but recovered slightly to be bid at R10.8608 at 5pm, down 9.27c from a day earlier. The gap on the current account, the broadest measure of trade in goods and services, was the narrowest in almost two years.

Exports rebounded in the fourth quarter following an end to labour strikes at vehicle manufacturers and mines. “This is a positive surprise for the rand,” said Gina Schoeman, an economist at Citibank.

Even so, sentiment remains bearish on the labour front as a strike in the platinum belt involving more than 70 000 mineworkers is now into its seventh week with no resolution in sight. “Exports should continue to improve but we acknowledge risks in the form of strikes and/or worse-than-expected global demand – particularly out of China.”

South Africa was classified as one of “the fragile five” last year, the group of emerging countries characterised by rising current account and fiscal deficits.

Annabel Bishop, Investec’s group economist, said there was likely to be a marked widening of the current account and trade deficits again in the first quarter. This was because the automotive sector strike reduced import demand for automotive components in the fourth quarter and with operations back to normal now, imports of components for assembly should rise.

On the household front, the Reserve Bank’s figures showed that consumption expenditure growth slowed to 2 percent from 2.1 percent, while household debt as a percentage of disposable income dropped to 74.3 percent from a revised 75 percent in the third quarter.

The state of the consumer is being watched for clues about what sort of impact the Reserve Bank’s bid to curb inflation by raising interest rates will have on consumption, especially discretionary spending.

With consumers applying brakes on their consumption, the jury is out on whether the Reserve Bank’s monetary policy committee will hike the interest rates by another 50 basis points at its policy meeting later this month.

Bishop said further interest rate increases were expected following the January hike, but they would suppress economic activity and real job creation in the private sector further.

Another repo rate hike would also subdue government tax revenues while denting business and consumer confidence, she added.

Mike Schüssler, the chief economist at, said the impact of the recent 50 basis point interest rate increase was yet to be felt, saying hikes took about six months to affect the economy.

“But even so, a half a percent increase is not what’s going to kill the economy. Even if we have another half a percent increase, it won’t kill the economy. Only when you raise rates by 2 percent to 4 percent, then you’ll kill it quickly,” he said.

Economists see the Reserve Bank as likely to hike rates again in July. – Additional reporting by Wiseman Khuzwayo