Current account deficit widens in first quarter

SA’s current account deficit widened in the first quarter of 2017 to 2.1% of GDP, from 1.7% the previous quarter, but the deficit is still small by recent standards.

In 2012-16, SA had one of the largest current account deficits in emerging markets, with the shortfall often exceeding 6% of GDP. The deficit narrowed in 2016 due to an improved trade balance.

Reserve Bank economist Iaan Venter said that an unchanged trade surplus, combined with a widened deficit in services, income and current transfer account resulted in the widened deficit.

Nedbank economist Isaac Matshego expected the current account deficit to widen slightly in coming quarters as imports improve. “We expect exports to be propped up by improving global demand, but it will remain highly dependent on domestic production improving, while risks to global growth remain on the downside.”

Capital Economics economist John Ashbourne said: “SA’s improved external position will help to shield the rand from the effects of continued political turbulence.”

He said that recent shocks such as the midnight cabinet reshuffle and subsequent creditrating downgrades had less of an effect on the currency than the cabinet reshuffle in December 2015 and 2016, when the country was more dependent on foreign capital inflows.

BNP Paribas economist Jeff Schultz, however, warned that the persistence of large foreign direct investment (FDI) outflows meant that the financing of the current account remained vulnerable and at the mercy of global risk appetite.

“The capital account detail continues to highlight a less appealing picture, particularly as it relates to [FDI].”

SA saw a net FDI outflow of just under R1bn in the first quarter. Schultz said that since 2006, SA’s cumulative outward FDI has come to about R350bn, which “further highlights the inability of the economy to attract meaningful fixed investment”. He said domestic corporates were looking abroad for growth and investment opportunities with the increasingly uncertain and unstable political and policy environment.

Investec economist Kamilla Kaplan said FDI was likely to increase in coming quarters. FDI increased from R6.5bn in the fourth quarter of 2016, to R9bn in the first quarter of 2017.