Rand falls as cur­rent ac­count deficit grows

Business Day - - National - Su­nita Menon and An­dries Mahlangu

The cur­rent ac­count deficit widened marginally to 3.5% of GDP in the third quar­ter from 3.4% pre­vi­ously, mainly due to the smaller trade sur­plus, data from the Re­serve Bank showed on Thurs­day.

The cur­rent ac­count is in­dica­tive of SA’s trade with the rest of the world. Com­pared to re­cent years, the deficit has nar­rowed sig­nif­i­cantly after av­er­ag­ing more than 5% of GDP be­tween 2012 and 2015.

“What these num­bers tell us is that SA’s vul­ner­a­bil­ity to ex­ter­nal fac­tors has in­creased, though not sig­nif­i­cantly. We are still re­ly­ing more on ex­ter­nal sources of fund­ing to bal­ance our books,” said ETM An­a­lyt­ics mar­ket an­a­lyst Halen Bothma.

On Thurs­day, the rand slid more than 2% to cross R14 to the dol­lar for the first time in about two weeks.

“This is likely re­lated to other is­sues,” said BNP Paribas econ­o­mist Jeff Schultz, cit­ing the risk cen­tre of emerg­ing mar­kets, trade ten­sion and the “idio­syn­cratic risks” posed by Eskom.

“The cur­rent ac­count would have been just one of many rea­sons, in­clud­ing ex­ter­nal fac­tors,” said Old Mu­tual Group econ­o­mist Jo­hann Els.

“Most of the nega­tive in SA is al­ready priced in.”

Global mar­kets tum­bled on the news of the ar­rest of Chi­nese tech com­pany Huawei’s CFO, Meng Wanzhou, in Canada. The move stoked ten­sion be­tween the US and China as Meng is re­port­edly fac­ing ex­tra­di­tion for al­legedly vi­o­lat­ing sanc­tions against Iran.

The move could scup­per the trade truce the US and China reached last week­end.

The steep losses co­in­cided with a big drop on Wall Street, with the Dow Jones in­dus­trial av­er­age slid­ing 2% dur­ing its early ses­sion. The JSE also suf­fered on Thurs­day, drop­ping as much as 3% to 50,078.6 points, later re­cov­er­ing some­what to close 1.75% lower.

“It’s the fear of a global slow­down ... and SA’s cur­rent ac­count deficit widened. This will dampen SA’s mo­men­tum right now and is go­ing to pro­vide new headaches for the Re­serve Bank,” said Marc-An­dre Fongern, founder of Ger­man-based MAF Global Forex.

Schultz warned that SA is still run­ning a twin deficit and not at­tract­ing enough for­eign di­rect in­vest­ment, which makes the rand volatile. “The rand is likely to re­main vul­ner­a­ble in the event of a de­te­ri­o­ra­tion in in­vestor risk ap­petite,” said Cap­i­tal Eco­nomics econ­o­mist Wil­liam Jack­son.

Els said while in­vest­ment is “pretty weak” at the mo­ment it should im­prove.

The busi­ness con­fi­dence in­dex for Novem­ber, com­piled by the SA Cham­ber of Com­merce and In­dus­try (Sacci), im­proved by a mar­ginal 0.3 in­dex points to 96.1 from the month be­fore. This is one point higher than where it was in Novem­ber 2017.

“The flat­ten­ing of mo­men­tum in busi­ness con­fi­dence must be ad­dressed in or­der to cre­ate a sit­u­a­tion where in­vestor con­fi­dence could be nur­tured,” Sacci said on Thurs­day.

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