The gap on the current account, the widest measure of trade in goods and services, narrowed to 191 billion rand ($19.1 billion), the Reserve Bank said in its Quarterly Bulletin, released in Pretoria today. The median estimate of 15 economists surveyed by Bloomberg was for the deficit to widen to 6.9 percent of GDP from 6.5 percent in the final quarter of 2012.
“The export earnings of South African producers continued to benefit from the lower exchange value of the rand, which extended into the first quarter,” the central bank said. “South Africa’s terms of trade improved somewhat in the first quarter of 2013 as export commodity prices held up well relative to the prices of imported goods and services.”
The rand’s decline this year boosted export revenue as the economy struggles to rebound from strikes last year that shaved about 0.5 percentage point off the economy, while inflation saps consumer demand. Slowing growth is making it harder for Finance Minister Pravin Gordhan to rein in the fiscal deficit, a concern raised by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings when downgrading South Africa starting in September.
The rand weakened 0.3 percent to 10.0240 per dollar at 8:45 a.m. in Johannesburg, extending its decline this year to 15 percent.
The economy expanded at an annualized 0.9 percent in the first quarter, the slowest pace since the 2009 recession, and less than the 7 percent rate the government says it needs annually through 2020 to cut the jobless rate to 14 percent from 25 percent. The Reserve Bank held the benchmark repurchase rate at 5 percent last month as inflation limited the room it has to move rates.
South Africa relies mainly on foreign investment in stocks and bonds to fund the deficit, inflows that have fluctuated this year as investors’ risk perceptions increased.
The current-account deficit was adequately financed by foreign inflows last quarter as foreign direct investment rebounded. Investment in stocks and bonds by non-residents slowed to 1.4 billion rand, compared with 12.5 billion rand in the final three months of the year, the central bank said. South Africa recorded 12.9 billion rand in foreign direct investment compared with an outflow of 1.4 billion rand in the previous three months.
“The deficit on the current account was fully financed by a further sizable inflow of foreign capital in the first quarter,” the bank said.
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