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South Africa Current Account Gap Remains at 6.4%

Dec. 6 (Bloomberg) -- South Africa’s current-account deficit was unchanged at 6.4 percent of gross domestic product in the third quarter, less than economists forecast, as lower dividend payments to foreigners helped to offset a deteriorating trade account.

The gap on the current account, the broadest measure of trade in goods and services, reached an annualized 202.5 billion rand ($23 billion), the Reserve Bank said in its Quarterly Bulletin released in Pretoria today. The median estimate of 11 economists surveyed by Bloomberg was for the deficit to reach 6.7 percent of GDP.

South Africa’s trade gap has widened this year as mining strikes halted production at shafts owned by AngloGold Ashanti Ltd. and Lonmin Plc and imports climbed. An increase in farming and vehicle exports cushioned the impact of the mining strikes last quarter, easing pressure on the current-account shortfall, the central bank said.

“The volume of merchandise exports also inched higher, reflecting higher agricultural and manufacturing exports despite a tough international trade environment,” the bank said. The current-account deficit also improved because of “lower dividend payments to non-resident investors.”

South Africa’s trade gap in the first 10 months of the year was 104.6 billion rand, 10 times larger than a year earlier, according to data from the South African Revenue Service.

Portfolio Investment

“The unsustainably large current-account deficit could put the rand under more pressure,” Nedbank Group Ltd. in Johannesburg said in a note to clients. The central bank “will keep monetary policy neutral over an extended period in order to balance weak growth prospects and rising inflationary pressures.”

The Reserve Bank kept the benchmark rate at 5 percent last month to support an economy that expanded at the slowest pace in the third quarter since a recession in 2009 even as as inflation climbed to 5.6 percent in October, the highest in four months, according to statistics agency data.

The rand erased declines after the central bank report was released and traded 0.3 percent stronger at 8.7464 a dollar by 12 p.m. in Johannesburg, paring a drop this year to 7.5 percent. The yield on rand-denominated bonds due in March 2021 fell two basis points to 6.60 percent.

Industrial Strife

The labor turmoil may still affect the current account data in the fourth quarter, the central bank said.

“The impact of the industrial strife on platinum exports appeared not to be significant in the third quarter as the strike occurred more towards the second half of the quarter,” it said.

South Africa relies mainly on foreign portfolio investment to fund the deficit, inflows that have fluctuated this year as global growth slowed and investors’ risk perceptions increased. That’s undermined the rand, which has dropped 7.9 percent against the dollar this year, the second-worst performer of 16 major currencies tracked by Bloomberg.

The current-account deficit was adequately financed by foreign inflows last quarter. Investment in stocks and bonds by non-residents increased by 27.5 billion rand, compared with 22.7 billion rand in the second quarter, the central bank said. Foreign direct investment grew by 22.2 billion rand, up from 6.6 billion rand.

Consumer spending rose an annualized 2.6 percent in the third quarter, the slowest pace in three years, compared with 3.1 percent in the previous three months, the central bank said.

To contact the reporters on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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