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South African Current Account Deficit Unexpectedly Widens

South Africa’s current-account deficit unexpectedly widened to 6.4 percent of gross domestic product in the second quarter, the biggest gap in almost four years, as exports declined on a slump in global demand.

The gap on the current account, the broadest measure of trade in goods and services, grew from 4.9 percent of GDP, to the widest since the third quarter of 2008, the Reserve Bank said in its Quarterly Bulletin released in Pretoria today. The median estimate of 11 economists surveyed by Bloomberg was for a shortfall of 4.8 percent.

“Export volumes declined notably, influenced by the general moderation in global demand,” the central bank said. “Import volumes held up fairly well in the second quarter of 2012, supported by the rising level of domestic expenditure.”

A debt crisis in Europe has damped demand for exports from a region that buys about a third of shipments from Africa’s biggest economy, curbing economic growth. Manufacturing production declined 1 percent in the second quarter, according to Statistics South Africa, and the government and central bank forecast economic expansion will slow to 2.7 percent this year from 3.1 percent in 2011.

“Exports are under huge pressure across the board,” Kevin Lings, a Johannesburg-based economist at Stanlib Asset Management, said in a phone interview. “You would have to blame the European situation. The slowdown in emerging Asia is also hurting us. South Africa has once again become much more import intensive. The rand is going to remain under some pressure.”

Rand Weakens

The rand fell the most since Aug. 30 against the dollar after the release of the current-account data. The currency retreated as much as 0.5 percent to 8.2343 a dollar and traded at 8.2236 at 11:30 a.m. in Johannesburg. Yields on the nation’s 6.75 percent bonds due March 2021 fell one basis point, or 0.01 percentage point, to 6.578 percent.

The trade deficit increased to 75.7 billion rand ($9.2 billion) in the second quarter from 42 billion rand as export volumes fell 2.7 percent, the central bank said. Imports rose 1 percent as an acceleration in investment by government and utilities supported spending in the economy, it said.

Household expenditure growth slowed to an annualized 2.9 percent from 3.1 percent, while the expansion for government spending accelerated to 4.1 percent, the central bank said.

Capital Inflows

The Reserve Bank cut its benchmark rate to 5 percent on July 19, the lowest level in more than 30 years, to help boost economic growth. Consumer spending has been the driver for a recovery from recession in 2009.

The shortfall on the current account widened to 200 billion rand as dividend payments also jumped, it said. Capital inflows helped South Africa finance the deficit, with the financial account recording a surplus of 48 billion rand.

“The shortfall on the current account was broadly matched by the surplus on the financial account of the balance of payments, with inward portfolio investment in the form of bonds making the largest contribution to the inflow,” the central bank said.

Foreign direct investment dropped to 5.7 billion rand in the three months through June from 7.7 billion rand in the previous quarter, the bank said.

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