Current account shortfall widens

Although the current account deficit continues to widen, many economists still expect a second rate cut in 2017 as the monetary policy committee’s September meeting approaches.

The deficit widened in the second quarter to 2.4% of GDP, from 2.0% the previous quarter. The Reserve Bank’s Quarterly Bulletin released on Thursday showed an increased trade surplus was offset by a larger shortfall on services, income and current transfer payments.

The deficit has, however, narrowed significantly from an average of more than 5% of GDP from 2012-15. The current account is indicative of SA’s trade with the rest of the world.

“Overall, the limited current account shortfall should help to keep pressure on the rand contained and is unlikely to prevent the Reserve Bank from lowering interest rates,” Capital Economics economist John Ashbourne said on Thursday.

Nedbank economist Isaac Matshego expected the deficit to widen further in the coming quarters, albeit marginally, as domestic demand benefits from lower interest rates.

“We believe that the [Reserve Bank] will then leave rates on hold at the last meeting of 2017 as the rand, the key risk to the inflation outlook, is likely to remain volatile ahead of the credit ratings agency ratings updates and the ANC’s elective conference in December.”

Nomura’s emerging markets investment economist Peter Attard Montalto expected a 25 basis point cut next week. “It looks like an attempt to do what little they can to support growth, when they can,” he said.

BNP Paribas economist Jeff Schultz said the deficit being lower than the post-2010 average “stems from more favourable terms of trade, thanks to industrial metal prices and certain precious metals which continue to hold up relatively well”.

Schultz expected the current account to improve markedly after the ANC’s elective conference as clarity on the future of politics and policy emerged.