South Africa Current-Account Gap Grows to Biggest in 2 Years

(Bloomberg) -- South Africa’s current-account deficit swelled to the biggest in two years in the first quarter as a strong rand weighed on export income.

The shortfall on the current account, the broadest measure of trade in goods and services, widened to 4.8 percent of gross domestic product compared with a 2.9 percent gap in the three months through December, the South African Reserve Bank said in its Quarterly Bulletin released on Thursday in the capital, Pretoria. That exceeded the 3.9 percent median estimate in a Bloomberg survey.

The rand’s surge to a three-year high in February following Cyril Ramaphosa’s ascent to the presidency lowered the appeal of South African exports and the value of merchandise shipments dropped by 9.6 percent, according to the central bank. After seven quarterly surpluses, the trade balance swung to deficit of 25 billion rand ($1.8 billion).

The currency has wiped out all gains since, plunging to its weakest level in almost seven months against the dollar this week. The bigger deficit could add to pressure on the rand and while this may push up import prices and the inflation rate, it may also boost export revenue. The National Treasury forecast the current-account gap will shrink to 2.3 percent of GDP this year.

“Historically, a weaker rand should result over time in an improvement in exports, and perhaps a depressing effect on imports, and improvement in the current account,” Piet Swart, head of balance of payments division at the central bank, told reporters in Pretoria.

The rand weakened as much as 0.9 percent against the dollar after the current-account data was published, and was 0.8 percent down at 13.7692 by 10:59 a.m. in Johannesburg.

“I would not expect the rand to fall significantly,” said Isaac Matshego, an economist at Nedbank Ltd. in Johannesburg. “What’s driving the weakness at the moment are global factors. Emerging markets are under pressure.”

Africa’s most-industrialized economy relies mainly on foreign investment in stocks and bonds to help fund the shortfall on its current account. These portfolio flows stood at 89.4 billion rand in the first quarter and foreign direct investment was 10.5 billion rand.

These are some of the highlights from the report:

• Spending on fixed capital fell an annualized 3.2 percent from the previous quarter
• Growth in household spending slowed to an annualized 1.5 percent from 3.6 percent
• Government expenditure increased an annualized 1.2 percent
• Household debt to disposable income was 71.7 percent in the first quarter
• Merchandise export volumes fell 5.1 percent; imports decreased 1.5 percent
• Nominal unit-labor costs rose 4.9 percent in the fourth quarter

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