South Africa Current-Account Deficit Widens as Exports Drop

  • Trade deficit more than doubles in fourth quarter, SARB says
  • Government is forecasting shortfall of 4 percent in 2016

South Africa’s current-account deficit widened more than economists estimated, reaching 5.1 percent of gross domestic product in the fourth quarter as exports declined despite a weaker rand and dividend receipts from abroad decreased.

The gap on the current account, the broadest measure of trade in goods and services, increased from a revised 4.3 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released on Tuesday in the capital, Pretoria. The deficit was forecast to reach 4.4 percent, according to the median estimate of 12 economists surveyed by Bloomberg.

A worsening in the trade outlook threatens to undermine the rand further after it fell 11 percent against the dollar in the past six months. South Africa relies mainly on foreign investment in stocks and bonds to help fund the current-account shortfall, inflows that declined in the fourth quarter as investor confidence in President Jacob Zuma’s administration weakened.

“The fact that the deficit has been above 3 percent for some years keeps the pressure on the rand,” Christie Viljoen, an economist at KPMG LLP, said by phone from Cape Town on Tuesday. “This is yet another data set which tells us we have a lot of work to do to fix this economy.”

The rand weakened 1.1 percent to 15.4201 against the dollar as of 11:20 a.m. in Johannesburg on Tuesday. The yield on rand-denominated government bonds due December 2026 rose five basis points to 9.34 percent.

The deficit for 2015 narrowed to 4.4 percent of GDP from 5.4 percent in the previous year. The government is forecasting a shortfall of 4 percent this year.

The trade gap more than doubled to 57 billion rand ($3.7 billion) in the fourth quarter as exports, excluding gold, fell 3 percent to 969 billion rand. Imports rose 1.1 percent to 1.1 trillion rand in the period.

“Even though the depreciation in the exchange value of the rand boosted the export earnings of domestic producers, the benefits thereof were more than fully negated by a further decline in the international prices of South African export commodities in the fourth quarter,” the Reserve Bank said.

While the weakening in the exchange rate in the fourth quarter helped to boost spending by foreign tourists, it will also add to costs in the economy, according to the central bank. Inflation accelerated to a 17-month high of 6.2 percent in January, exceeding bank’s target band of 3 percent to 6 percent.

‘Bad News’

“Inflation pressures intensified in recent months and it’s already outside the target range,” Johan van den Heever, head of economic reviews and statistics in the central bank’s research department, said on Tuesday. “It seems there’s more bad news in the pipeline.”

Foreign investment in stocks and bonds swung to an outflow of 300 million rand in the fourth quarter from an inflow of 11.8 billion rand in the previous three months, while foreign direct investment fell 14 percent to 13.7 billion rand.

Consumption improved last quarter, with growth in spending by consumers, the government and businesses accelerating to an annualized 4.3 percent from 1.4 percent in the third quarter. Household spending, which makes up about two-thirds of expenditure in the economy, rose 1.6 percent, up from 0.9 percent in the previous three months.

Finance Minister Pravin Gordhan last month cut this year’s GDP growth forecast by almost half to 0.9 percent as the worst drought in more than a century, a slowdown in expansion in South Africa’s biggest export market, China, and falling commodity prices weigh on output.

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