South Africa Current-Account Gap Near Four-Year HighAndres R. Martinez
South Africa posted a current-account deficit close to a four-year high in the fourth quarter, undermining the rand and adding to price pressures in Africa’s biggest economy.
The gap reached 6.5 percent of gross domestic product, down from a revised 6.8 percent in the third quarter, the biggest since the same period in 2008, the Reserve Bank said in its Quarterly Bulletin released in Pretoria today.
The deficit, the broadest measure of trade in goods and services, almost doubled to 6.3 percent in 2012 from 3.4 percent a year earlier as mining strikes and slower growth in Europe cut exports. That’s contributed to the rand sliding 7.1 percent against the dollar this year, adding to pressure on inflation and making it difficult for policy makers to reduce borrowing costs to spur the economy.
“This basically reaffirms the imbalances of the domestic economy,” Jana Le Roux, an economist at Econometrix Treasury Management in Johannesburg, said in a phone interview today. “The rand is likely to remain weak in the short to medium term.”
The median estimate of 10 economists surveyed by Bloomberg was for the shortfall to narrow to 6.3 percent of GDP in the fourth quarter from an unrevised 6.4 percent in the previous three months.
The rand extended its decline after the data, dropping as much as 1.2 percent to 9.1994 against the dollar. It was trading at 9.1938 as of 10:22 a.m. in Johannesburg.
The deficit eased to an annualized 212.6 billion rand ($23 billion) last quarter as mining exports rebounded following a series of strikes at platinum and gold mines in August.
Exports may come under pressure again this year because of ongoing stoppages at Exxaro Resources Ltd. coal mines, a threat of more wildcat strikes and a record trade deficit in January. The trade gap widened to 24.5 billion rand in January from 2.7 billion in December.
South Africa relies mainly on foreign investment in stocks and bonds to fund the deficit, inflows that have fluctuated this year as global growth slowed and investors’ risk perceptions increased.
“Foreign investors’ confidence in South Africa was negatively affected in the closing months of 2012 as labor unrest in the mining sector spilled over into the agricultural sector and as ratings agencies announced sovereign downgrades,” the bank said in its report.
Foreign portfolio inflows to help finance the current-account gap fell last quarter, undermining the rand. Investment in stocks and bonds by non-residents dropped to 12.5 billion rand from 27.5 billion rand in the third quarter, the bank said. Foreign direct investment recorded an outflow of 1.4 billion rand, compared with an inflow of 22.2 billion rand in the previous three months.
Africa’s largest economy expanded 2.5 percent in 2012, less than half the 7 percent pace the government estimates it needs to slash a 25 percent jobless rate. Reserve Bank Governor Gill Marcus kept the benchmark interest rate unchanged at 5 percent, the lowest level in more than 30 years, in January as inflation remained near the top of the bank’s 3 percent to 6 percent target.
Marcus said last week the rand’s weakness beyond 9 against the dollar was “overdone” and the currency will probably recover.