Filomena Scalise

Pretoria - South Africa ended 2013 with a smaller current account deficit than expected but the narrowing was driven by the biggest tumble in imports in four years, a sign that Africa's powerhouse economy is struggling.

Spending in the economy meanwhile contracted last year to levels last seen during a 2009 recession, the South African Reserve Bank said in its quarterly report on Wednesday.

The current account deficit, seen as a key weakness of South Africa's economy, narrowed to 5.1 percent of gross domestic product in the fourth quarter of 2013, compared with a revised 6.4 percent shortfall in the previous three months.

Last year's overall current account gap of 5.8 percent of output was the biggest since 2008, when the economy was entering recession.

The deficit had been 5.2 percent of GDP in 2012.

The volume of goods imported in the fourth quarter contracted by 5.5 percent, the steepest quarterly fall since 2009, the bank said, while exports picked up slightly.

“The far more important driver was a sharp drop in imports,” said Neil Shearing, emerging markets economist at Capital Economics, adding that South Africa was experiencing “the wrong kind” of rebalancing of the current account.

Like other emerging economies with significant deficits, South Africa has in recent years relied on foreign investment inflows to cover the shortfall in its current account.

It experienced the largest quarterly portfolio outflow in five years in the fourth quarter, however, as concerns about the withdrawal of US monetary stimulus prompted investors to flee emerging markets.

Some 30.8 billion rand left the country between October and December, the central bank said, compared with 48.8 billion rand of inflows in the third quarter.

Unrecorded transactions amounting 30.5 billion rand helped to plug the gap.

The rand firmed slightly after the data, before continuing to track emerging markets weaker.

The currency has fallen to five-year lows this year as the rout in emerging markets has continued.

The central bank said the weaker rand had not yet stoked inflation, although it had pushed up the local price of imports and inflation expectations had started to respond.

“A greater volume of domestically produced goods had to be given up for an unchanged volume of imported goods, which ... suggests that the national income of the country has declined relative to that of other countries,” the central bank said.



Wednesday's data also showed overall spending in South Africa shrank in the final quarter to levels last seen in 2009 as households curbed consumption and the pace of growth in fixed capital spending declined.

The central bank said spending contracted 3.6 percent in October-December from a third quarter figure revised to -0.8 percent from a previous estimate of nearly 2 percent growth.

Household spending grew by 2.6 percent in 2013, compared with 2012's 3.5 percent expansion, constrained by tighter lending criteria and higher consumer prices and the impact on incomes of inflation and labour unrest.

Spending on furniture and computers fell sharply.

Inventories contracted to 22.3 billion rand, from a previous surplus, as companies hit by strikes earlier in the year met demand by drawing down on their accumulated stockpiles.

Subdued domestic demand is expected to further depress imports, which should see the current account deficit narrow further. But analysts say South Africa's balance of payments needs an export-led correction.

“Instead, the burden of the adjustment will continue to fall on the imports side of the equation,” Shearing at Capital Economics said.

“That in turn points to a prolonged period of weak economic growth.” - Reuters