South Africa Posts Biggest Current Account Gap in 3 Years

South Africa posted its biggest current-account deficit in three years in the first quarter as a stronger rand and a slump in global demand cut exports in Africa’s largest economy.

The shortfall on the current account, the broadest measure of trade in goods and services, widened to 4.9 percent of gross domestic product from 3.6 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released in Pretoria today. The median estimate of 13 economists surveyed by Bloomberg was 4.5 percent.

The rand gained 5.4 percent against the dollar in the first quarter, the second-best performer of the 16 major currencies tracked by Bloomberg. That’s hurt export earnings at the same time that a debt crisis in Europe curbs demand from a region that buys about a third of South African manufactured goods.

“The second and third quarters are definitely going to look quite a lot weaker,” Gina Schoeman, an economist at Absa Group Ltd., said in a telephone interview from Johannesburg. “Imports aren’t going to deteriorate as much as exports and that will put pressure on the current account deficit.”

The deficit may widen to about 5 percent to 5.5 percent this year from 3.3 percent in 2011, Schoeman said. The government is estimating the shortfall will reach an average of

4.4 percent a year over the next three years.

Foreign Inflows

The rand was at 8.2418 against the dollar as of 12 p.m. in Johannesburg from 8.2578 before the data was released. The yield on the rand debt due in 2015 rose 2 basis points, or 0.02 percentage points, to 6.01 percent today.

A stronger rand last quarter led “to a contraction in export proceeds over the period,” according to the report. “The slowdown in industrial production in some of South Africa’s key export markets dampened the demand for especially South Africa-produced mining commodities.”

South Africa relies on foreign investment in stocks and bonds to fund the current account gap, inflows that have fluctuated this year as investors sell off riskier, emerging-market assets.

Export earnings fell 2.4 percent to 697.7 billion rand ($84.4 billion) in the first quarter, while imports rose 0.3 percent to 819 billion rand, the central bank said.

Interest Rates

The current-account gap was adequately funded by foreign portfolio inflows, which more than doubled to 29 billion rand in the first quarter from 13 billion rand in the previous three months. Foreign direct investment dropped by more than half to

7.7 billion rand in the first three months of the year, the bank said.

A slump in exports comes as consumers and the government cut back on spending, undermining the economy’s recovery. Growth in consumer spending, which accounts for two-thirds of expenditure in the economy, slowed to an annualized 3.1 percent in the first quarter from 4.6 percent in the previous three months, the central bank said in its report.

“Poor global prospects will hurt consumer confidence and increase worries about job security,” Nedbank Group Ltd. said in an e-mailed note to clients today. “Given the deterioration in domestic spending and the unexpected easing in inflation, chances of an interest rate cut have increased.”

The Reserve Bank has left its benchmark interest rate unchanged at 5.5 percent, the lowest level in more than 30 years, since November 2010. Governor Gill Marcus said on July 8 policy makers are ready to adjust interest rates in either direction.

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